The chances of the US economy slipping into deflation are rising even though the Federal Reserve (Fed) is injecting an unprecedented amount of liquidity into the system to buttress growth and inflation.
The Fed’s deflation probability indicator, as calculated by the St. Louis Fed, rose to 76.3% last week, the highest level since 2008. Deflation refers to a sustained decline in the general price level in the economy.
The uptick in the deflation probability indicates the Fed is unlikely to achieve its 2% inflation target any time soon. However, rally in gold, a safe haven, and an inflation hedge, suggests otherwise.
The yellow metal jumped to an eight-year high of $1,779 on Wednesday and was last seen trading near $1,768 per ounce, representing a 16.5% gain on a year-to-date basis.
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