A Fed Taper with Current Inflation

The prevailing opinion has been that inflation has not been a problem the past two years, and that non-problem has given the Federal Reserve the leeway to conduct its stimulus programs pretty much as it sees fit. But what it inflation isn’t a cover for QE anymore, but the reason to keep doing QE?

“We expect the Fed will pay increasing attention to the below-target inflation rate, which should mean a gradual tapering and a later, slower exit,” Michael Hanson, the senior U.S. economist at Bank of America/Merrill Lynch, wrote to clients after this morning’s CPI report, which continues to show inflation running at multi-year lows.

“There is little upward price pressure anywhere in the economy, reflected in the PPI, PCE, and CPI measures,” FTN Financial economist Jay Morelock wrote. “With benign prices and a tepid labor market, both sides of the Fed’s dual mandate calls for further stimulus by the Fed, not less.”


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