Low inflation is a sign of recessions.

Federal Reserve must raise the interest rates or the recessions and deflation will come.

The low inflation is a signal of economic problems and related to weak economy. Global inflation rates have been low since the financial crisis of 2008. The too-low inflation makes unemployment high and makes the consumer confidence low. People and business may be less willing to make investment and spend on consumption, and then it may bring the economic to recessions and deflation.

Even though Donald Trump keeps inciting trade wars with Canada, EU and China, it has not sparked any increase of inflation yet. Economic history has shown that economies perform best with slightly higher levels of inflation, such as 2-3%. If the inflation too low, the companies may not have leeway to raise prices and that may force them to cut costs or cut back on hiring. And low inflation often come along with lower wages. Lower wages may cause consumers become less motivated to spend.

So I am looking forward to two more hikes in 2018.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s