The fall in inflation to well below the Fed's 2% target rate is another reason why the central bank will be in no hurry to slow the pace of its monthly asset purchases. Headline CPI inflation fell to only 1.1% in April. Admittedly, the decline was mainly due to the most recent drop back in gasoline prices. But core CPI inflation has also been falling, albeit more gradually. Inflation is also even lower on the Fed's preferred PCE deflator measures. With falling commodity prices pushing finished goods prices lower and moderate gains in unit labour costs constraining services inflation, it is possible that core inflation will fall further in the second half of the year. Nevertheless, we still anticipate that the improving real economy will prompt the Fed to curb its $85bn per month of asset purchases before year-end.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services