History of U.S. Inflation Since the 2008 Financial Crisis


For the 12 months ending October 2017, the U.S. inflation rate sits at 2.0 percent, as published by the U.S. Labor Department on Nov. 15, 2017. This is a monthly figure, with the next update due Dec. 13. The Labor Department's Bureau of Labor Statistics (BLS) computes these figures each month using the Consumer Price Index (CPI) as its baseline. Since the country's 2008 financial crisis, there has been an ongoing struggle to regulate inflation and move it towards the Fed's 2.0 percent target.

What is the Federal Reserve's Inflation Target?

According to the Federal Reserve's own statement, the country's central bank believes that a 2.0 percent annual inflation rate over the medium term is the best way to maintain maximum employment and price stability. Higher rates of inflation over time would negatively impact the public's ability to make long-term financial decisions. Conversely, lower rates would lead to deflation and give us a weak economy with depressed wages and the need for additional economic policy intervention.

Just because 2.0 percent has been the Fed's inflation target in the past doesn't mean that will be the goal indefinitely. In fact, there has been recent debate on just this topic. The low growth rates in recent years have the agency and even Central Bankers in Britain, Europe, and Japan re-thinking their inflation goals. Some believe that by raising the inflation target to 3.0 or 4.0 percent, there will be more room for nominal interest rates to rise without stifling economic growth.

The History of Inflation Since the 2008 Financial Crisis

When the 2008 financial crisis hit this country, the average annual inflation rate was nearly double the Fed's target at 3.8 percent. In fact, some months in 2008 had annual inflation rates as high as 5.6 and 5.4 percent, which were the highest rates in 17 years.

After the stock market crashed and the country entered the Great Recession, we also had a period of deflation throughout 2009. Some inflation rates were as low as -2.1 percent and the annual inflation rate for the year was -0.4 percent on average.

Inflation rates have varied between 2010 and 2017 as the country struggled to recover from the financial crisis. In 2011, the average annual inflation rate was 3.2 percent, and in 2015 the rate was 0.1 percent. So far in 2017, our annual inflation rate sits at 2.1 percent. Over the decade between 2008 and 2017, the annual inflation rate is 1.47 percent on average.


What the Future Holds for U.S. Inflation

Talk of the Fed and other Central Banks raising their inflation targets is still a debate topic at this point. The truth is that just getting and keeping inflation at the current 2.0 percent target seems a difficult enough task. That being said, Federal Reserve officials don't seem particularly concerned about sluggish inflation figures.

New York Fed President William Dudley reiterated that position at a recent forum when he noted that labor figures appear to indicate "full employment" and he expects both wage gains and inflation to rebound with further interest rate hikes. October's inflation figures, less the volatile energy and food categories, appear to clear the way for another interest rate hike in December.

Gains in the core CPI, which measure underlying inflationary pressures, appear to support the case that our inflationary rut is in the past and more healthy spending is on the way. October's core CPI was up 0.2 percent in October to an annual rate of 1.8 percent. It also edged up 0.01 percent the prior month.

Partner with an Asset Management Company to Reduce Loan Portfolio Risk

According to the CME FedWatch Tool, the chances of a December rate hike now sit at 92.8 percent. Even the Federal Reserve's incoming chairman, Jerome Powell, has publicly stated on several occasions that he supports further interest rate hikes as part of the agency's monetary policy.

The wisest move for lenders who are facing potential increases in interest rates is to carefully review portfolios and consider buying or selling loans to minimize risk and guarantee the best possible returns. While interest rates remain low and consumer confidence high, lenders should take advantage of a unique opportunity to acquire short-term and adjustable-rate loans while selling a loan that isn't profitable.

There is risk associated with loan portfolio sales, which is just one of the reasons why partnering with an experienced asset management company that ensures regulatory compliance and guarantees a network of high-quality note buyers is vital to the success and profitability of any lending business.