Unlimited Quantitative Easing and the Inflation Cycle
Last September, the Fed announced that unlimited quantitative easing (QE) would continue until the job market situation improves considerably. With that declaration, the Fed went all-in trying to raise inflation expectations with the hope of incentivizing people to make purchases sooner rather than later, thereby boosting near-term economic activity. While the success of this strategy remains in question, inflation expectations have clearly risen since the fall. Given the circumstances, it is very important to understand the current state of the inflation cycle and to assess the prospects for a cyclical upswing in inflation.
To address this question, ECRI has examined the cyclical patterns in the headline CPI, and its major subcategories, in conjunction with a detailed analysis of the latest cyclical movements in ECRI’s forward-looking U.S. Future Inflation Gauge, which is designed to anticipate U.S. inflation cycles. Surprising results are revealed about where we are in the inflation cycle today and the likely direction of inflation in coming months.