Fed: Future rate hikes depend on inflation
The US Fed expects inflation to rise to 2% in the medium term, according to the minutes of its December meeting when it decided on a 25bp hike to the benchmark rate to 0.5%.
Despite inflation declining "below the [Federal Open Market] Committee's longer-run objective, largely reflecting declines in energy prices" the minutes revealed that the Fed expects the CPI to rise gradually toward 2% "as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate."
Nevertheless the speed of further rate hikes during 2016 will depend mainly on inflation and that the Fed will "assess progress - both realized and expected - toward its objectives of maximum employment and 2% inflation."
"However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated," the minutes state. "Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated."
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