A “made-up number”… Inflation expectations for the next decade, and why should the “old view” be changed?

Amid cautious optimism about the possibility of lower inflation rates in the United States than in previous months, Vincent Delward, equity strategist at StoneX Financial believes that the goal of maintaining an inflation rate of 2 percent, which is the figure set by the Federal Reserve as a goal it seeks to achieve, should be changed. by raising interest rates.

Analyst said in “What Goes Up” podcast by Bloomberg He does not believe that inflation will decrease anytime soon at the desired rates, rather the US will see an inflation rate of about 5 percent for the next decade, and that this is “not bad”.

Inflation in the United States slowed in October to 6 percent at an annual rate, compared to 6.3 percent in September, according to the personal consumption expenditures index approved by the US Federal Reserve, whose figures were published by the Ministry of Commerce last Thursday.

Inflation remained stable at 0.3 percent on the month, surprising analysts who had expected a slight acceleration of 0.4 percent.

Inflation, which has been recording very high levels unprecedented since the early 1980s, is a priority for the Federal Reserve, which has increased its basic interest rates in an effort to slow consumption and thus the economy, which will allow relieving pressure on prices.

The Fed raised its key interest rate four times, most recently last month.

The policy of increasing interest rates aims to push commercial banks to provide more expensive loans to their clients, individuals or companies, who will be less inclined to consume and invest, which is supposed to allow easing pressure on prices.

The Fed said, in a statement last month, that it seeks inflation to reach 2 percent over the long term.

The strategist who spoke with Bloomberg believes that we will see an inflation rate of 5 percent for the next decade, and that the Federal Reserve should accept this.

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“made up number”

“It wouldn’t be the worst thing in the world,” he said. “And if you look at the history of the 2 percent target, it’s a made-up number, and it came from a press conference in New Zealand in the late 1980s, but there’s no scientific reason behind 2 percent.”

“If you look at the distribution of inflation and growth in the United States, you’ll actually notice that growth, real, was actually faster when inflation was in the 4-5 percent range,” he added.

He explains that inflation will be harmful if it is higher than 10 percent, or if it is unpredictable inflation, but as long as there is “stable and somewhat moderate inflation, whether it is 2, 4 or 5 percent,” this does not lead to major changes. “And I think that’s the way most Americans feel. Most Americans don’t even know what the Fed does, they don’t know about 2 percent inflation.”

He explains that the three factors that facilitated 2 percent inflation no longer exist: cheap labor coming across borders, cheap goods from China, and cheap capital.

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