• Data released this week shows that inflation pressures have yet to gain significant traction, despite the U.S. unemployment rate remaining close to its 50-year low.1 The consumer price index (CPI) rose 1.6% in January 2019 compared to one year earlier.2
  • Thanks in large part to lower energy prices, it has been on a gradual downtrend since it peaked at 2.9% in June 2018.2 The less-volatile core CPI has held steady at 2.2% for the past three months.2
  • Within this environment, inflation expectations have receded in recent months from their levels of last year. As the chart shows, expectations for inflation have been hovering at, or just below, the Fed’s 2% target.3
  • This is important because, according to a recent Economic Letter published by the Federal Reserve Bank of San Francisco, expectations have become “the dominant factor explaining inflation dynamics.”4 The Fed economists note that “evidence suggests that inflation expectations are well anchored.”4
  • The Fed’s relatively dovish turn over the past six weeks, coupled with recent inflation readings that strengthen the case for its current pause, suggests that short-term interest rates could remain within today’s relatively low range for the foreseeable future.

1 U.S. Bureau of Labor Statistics, https://bit.ly/2ibnFLh.
2 Federal Reserve Bank of St. Louis, https://bit.ly/2pdtoEh.
3 Bloomberg, as of February 14, 2019.
4 Federal Reserve Bank of San Francisco, https://bit.ly/2TPwrC2.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.