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)