The Fed's doves can't fly forever

Risks to US inflation are modest and are mainly on the upside, particularly if wages respond to a strengthening labour market. The Fed's loose policy will be hard to justify for much longer.

Measures of inflation continue to track at around the Federal Reserve’s annual target of 2 per cent but with conditions in the labour market improving and easing spare capacity, the risks to inflation are mainly on the upside. For now, the Fed remains dovish but it will become increasingly difficult to justify such loose policy when the unemployment rate falls below 6 per cent.

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