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Analysts believe that the rising rents and increased medical costs should push inflation rate to the 2 percent target dismissing the Federal Reserve’s long-term concerns over the federal interest rate hike.
While a labor report released Tuesday shows that more and more U.S. residents apply for unemployment benefits, experts believe that the labor market remains within the healthy ranges.
Still, the Fed remains cautious on the U.S. workforce, so it plans to act very carefully when increasing the benchmark interest rate. But MUFG Union Bank experts are not that cautious. They noted that the U.S. economy is generating enough heat to support a healthy inflation.
The Fed has in mind a 2 percent inflation goal, but current readings are at 1.6 percent. So, the central bank doesn’t plan to hike rates anytime sooner as it doesn’t expect inflation to rise to 2 percent through 2017.
On the other hand, while the Fed vowed to rise the rate at least twice by the end of the year, six officials that once would be enough for the current year. The last time the federal funds rate was hiked was in December 2015 after nearly a decade.
In May, gas prices rose just 2.3 percent despite an 8.1 percent surge a month prior. Prices for food fell last month while medical care costs and rents kept rising. Experts noted that rents jumped 3.3 percent over the last year which is the largest rise in nearly a decade.
Analysts explain that the rents keep rising because fewer Americans find a new home affordable. Additionally, a positive labor market with new job prospects for young people also encourages the rising rents.
Healthcare costs are also on an upward trend. While hospital services rose 0.7 percent, so did physician visits (1 percent). Yet, the prices of prescription meds slipped 0.4 percent.
The prices of auto insurance and apparel rose, but used cars and trucks were cheaper.
According to the Labor Department, unemployment claims rose by 13,000 last month. But the claims on a weekly basis slipped by 250 last week. Analysts reassure us that claims remain below the 300,000 limit which signals that the labor market is healthy.
Fed officials, however, noted that labor market improves at a slower pace now and job gains dropped despite a lower unemployment rate.
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