Dip into deflation will be brief

This week we expect to learn that, principally because of the recent collapse in energy prices, US headline inflation plummeted into negative territory in January. Once the temporary effects from lower energy prices and the stronger dollar fade, however, we expect inflation to climb above the Fed's 2% target early next year. Since the Fed is targeting where inflation will be in one to two years' time, not where it is now, that temporary dip into deflation is not a reason to hold off from beginning to normalise monetary policy.