WASHINGTON – Sept. 1, 2017 – Higher consumer spending and falling unemployment point to healthy growth for the U.S. economy; but, at the same time, inflation has weakened.

Those conflicting signals complicate the U.S. Federal Reserve's plans to raise its benchmark interest rate once more before year-end.

"It appears that inflation is taking longer to respond to economic growth and labor market slack than in past cycles," Fotios Raptis, an economist at TD Economics, said in a note to clients. "But overall, we continue to believe that price pressures will eventually pick up as the economic cycle continues to mature."

The Fed has raised short-term interest rates twice this year and indicated that it wants to lift them once more before year-end. But with inflation weakening, higher borrowing costs invite the risk of reduced spending by consumers and businesses, which could further push inflation below the Fed's target and undermine the economic expansion.

Gregory Daco, chief U.S. economist at Oxford Economics, said he believes the latest data will "prevent the Fed from raising rates further in 2017." Instead, he expects the Fed to focus on shrinking its portfolio of bonds and other assets.

Source: Wall Street Journal (09/01/17) Mitchell, Josh

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