The U.S. inflation rate rose 2 percent to the highest it’s been since 2012 according to the latest figures released by the U.S. Department of Commerce’s Bureau of Economic Analysis.
Personal consumption expenditures — the Fed’s preferred gauge of inflation — increased $27.8 billion from April to May, to bring it to the Fed’s preferred level for a healthy economy for the first time since April 2012.
“Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate,” the Federal Reserve said in a statement earlier this month. “Job gains have been strong, on average, in recent months, and the unemployment rate has declined.”
“In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate [to 2 percent],” the statement continued. “The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.”
Month-over-month, personal income and disposable personal income both increased by 0.4 percent, according to U.S. Department of Commerce’s Bureau of Economic Analysis.
As a result of the strong economic gains and stability, the Fed raised its short-term interest rate from 1.75 percent to 2 percent Wednesday, the second hike of the year. The Fed has two more rate hikes penciled in for this year — and it projects the short-term interest rate to reach 3 percent in 2019 — if the current economic conditions continue, according to a news report from the Wall Street Journal.