Menu Close
Posted in Contributors- Economic and Financial, Other Guys, Taken Down

Inflation measures point to Bullard’s "small taper" – Sober Look

This is a syndicated repost courtesy of Sober Look. To view original, click here. Reposted with permission.

Inflation measures provide key data points for the Fed in deciding on the timing and the magnitude of taper. Last week’s PPI and today’s CPI numbers continue to show a fairly benign inflation environment.

Source: Econoday

However CPI and similar measures tend to be “lagging” indicators, motivating the FOMC to also look at market-based inflation expectations. In particular the committee tracks TIPS-based break-even figures, which also remain subdued.

Source: Ycharts

When adjusted for the so-called “risk premium” using a calculation performed by the Cleveland Fed (see paper), expectations of future inflation are even lower. What may be of concern for the Fed is that even 10 years out expectations are comfortably below the 2% target rate.

This bodes well for Bullard’s “small taper”. The idea is to begin reducing purchases soon in recognition of improving labor markets, but move cautiously to avoid declines in inflation.

James Bullard: – A small taper might recognize labor-market improvement while still providing the committee the opportunity to carefully monitor inflation during the first half of 2014. Should inflation not return toward target, the committee could pause tapering at subsequent meetings.

From our sponsor:

Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.

Related Posts

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.