3. Inflation remains subdued. The Fed has significant latitude to take its time. Most measures of inflation are closer to 1% rather than the Fed’s long-term target of 2%. If anything, over the next year, deflation is probably a greater threat than inflation.
The bottom line: Thanks to a slowly improving labor market, anemic wage growth and a still reluctant consumer, economic growth is likely to remain modest and inflation low. As such, while it’s still possible that the Fed will announce tapering of its bond purchases this month, early 2014 seems the more likely timeframe.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.
Source: Bloomberg