The 2.1% annualised increase in fourth-quarter GDP wasn’t quite as strong as the headline figures suggested but, stepping back, the economy still expanded by a respectable 2.3% last year. The conundrum for the Fed is that, despite continued above-potential real growth, core inflation has remained stubbornly below the 2% target. With Chair Jerome Powell confirming this week that officials are “not satisfied” with that persistent undershoot, it seems increasingly clear that interest rates are set to remain low for an extended period, even as economic growth picks up.
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