US: Low inflation represents a significant, persistent threat to the US dollar – CIBC

Analysts at CIBC, explained that inflation hasn’t been persistently high for a long time in the United States, such a scenario could weigh on the US dollar considering recent comments from Fed’s Chair Powell. 

Key Quotes: 

“The Fed’s statement and projections didn’t move markets too much. However, Chairman Powell’s remark that they would need to see a “significant, persistent” rise in inflation before hiking interest rates did move markets. The reason? Well, we haven’t seen that for a while. Assuming significant means above 2.5% and  persistent means longer than 6 months, we haven’t seen that sort of inflationary pressure even on headline measures since 2012.”

“The Fed’s preferred measure of core PCE hasn’t seen a sustained run above 2.5% since the early 1990’s! We don’t necessarily think that the Fed need’s to see that before hiking, but Powell’s remarks justify our call for no hike in 2020 (even if trade uncertainties ease) and for broad US$ weakness.”