US Fed's rate plan hampered by low inflation

The US Federal Reserve has keep interest rates unchanged, citing
concerns about low inflation.

The Fed is concerned a recent drop in inflation might point to new
economic weakness.

Which is a problem for the US central bank, at a time when it is
trying to push up interest rates, this year and next.

And new research suggests our smartphones could be part of the problem.

Nick Harper reports from New York.

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TAKE VO
At her recent testimony before Congress, Janet Yellen looked calm
before the cameras. But her economic balancing act is in jeopardy. The
current lower level of inflation, below the Fed's two percent target,
gives the Fed chair less wiggle room to raise rates.

SOT - Janet Yellen, Federal Reserve Chair: "Now for several months
running, we have seen unusually low inflation readings. As I
mentioned, there appear to be some special factors that partly account
for that. For example, quality adjusted prices of cell phone plans
plunged several months ago. So some temporary factors appear to be at
work."

TAKE VO
Consumer spending, the biggest driver of the US economy, remains
modest, and inflation has been cooling since February.
TAKE VO
Even so, the Fed appears on track to squeeze in its third planned rate
hike of 2017 at its final meeting of the year, in December.
TAKE VO
And economists like Steven Blitz from TS Lombard believe the lower
inflation level shouldn't alter that plan.

SOT - Steven Blitz, Chief US Economist, TS Lombard: "I don't think
there's any variance because of inflation. When you look at the level
of the federal funds rate and you look at the level of activity in the
economy it's very difficult to make the case for the federal funds
rate to be below the inflation rate. Now how far above the inflation
rate it should be is as they say a horse of an entirely different
color."

TAKE VO
But the fear is that what Yellen sees as temporary factors hampering
inflation may not be so transient. That the slower footfall on the
high street is part of a trend that's here to stay.
TAKE VO
Asset Management company Blackrock believes technological innovation
is driving down prices, and in turn inflation.
TAKE VO
Mobile phones mean we buy online, rather than entering bricks and mortar stores.
And apps offer us cheaper transport options than regular taxis, while
steaming services are replacing the need for appliances like TVs and
radios.
TAKE VO
But economic growth is also proving an impediment to future rate
hikes. This Friday's first figure for second quarter GDP, isn't
expected to be much of an improvement on the sluggish 1.4% growth in
the first three months of this year.
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