The stock market reached yet another new high on Wednesday, the latest development to mock what economic commentators thought they knew about the world.
Bond market price growth now suggests investors expect consumer price inflation in the U.S. at 2.03% a year over the coming decade — consistent with the 2% inflation the Fed aims for. It only recently reached that level, however, after being as low as 1.2% in February 2016. Similar measures of inflation expectations have risen in Germany, Britain and other advanced economies.
Tuesday afternoon, William C. Dudley, the president of the New York Fed, said in an interview that it would be fair to assume that the central bank would raise interest rates sooner rather than later, given the improving economy.
“There’s no question that animal spirits have been unleashed a bit post the election,” Mr. Dudley told CNN.
Fed watchers interpreted that to mean that an interest-rate increase could be on the way in mid-March, just three months after the December increase. Yet that did nothing to slow the 1.4% gain in the Standard & Poor’s 500 on Wednesday, and may even have contributed to it, as a sign of the Fed’s confidence in the economy.
