On Deck – US Inflation

A close look at the underlying trend in US inflation reveals that price pressures will continue to be contained for multiple upcoming quarters.  This, however, should be no surprise–low inflation is a symptom of the slow pace at which the economy is moving through the early stages of the business cycle.

What is being characterized in the marketplace as ‘Fed uncertainty’ is more appropriately defined as data uncertainty.  And while the market thrashes about focusing on individual pieces of economic data, we are strongly confident that persistent excess capacity means employment growth, inflation, and overall economic activity in the US will continue to be tepid.  Monetary policy normalization, as a result, will most certainly begin later than the market anticipates.

In On Deck – US Inflation, we provide a first-draft summary of the recent trend among several leading price indicators: On Deck – US Inflation (Fall 2013)

Dashboard – US Inflation (Spring 2013)

US inflation is broadly and quickly trending lower…the opposite direction of the FOMC’s stated intent.  More recently, real yields have also moved higher.  In the context of sluggish employment growth, slower manufacturing activity and weak momentum in Europe and the BRICs, higher US yields are incompatible with the Fed’s 6.5% unemployment and 2.0%-2.5% inflation targets.

Please review our Dashboard – US Inflation in which we review specific price measures, expectations, and the risks to the broader economy over upcoming months: Dashboard – US Inflation Spring 2013