It is becoming increasingly apparent that many Fed officials are underestimating the degree to which inflation will rise in the second half of the year. Fed officials expect core PCE inflation will fall back to 1.6% by the fourth quarter, but it remained at 1.7% in February. Our view is that, with domestic price pressures already rapidly building and the deflationary impact from the dollar’s past appreciation fading, core inflation will be close to 2% by the end of the year. Markets are already coming around to our view. Fed officials won’t be too far behind. We expect the fed funds target range to be between 2.25% and 2.50% by the end of next year, above the median Fed projection of between 1.75% and 2.00%.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services