Today’s inflation data illustrated that core inflation remains in precarious territory below the Fed’s implied target range and indicative of an environment that remains disinflationary.
Core inflation clocked in at just 0.8% for the last twelve months, as the index was unchanged in September for the fifth time in the past seven months.
With unemployment still high, jobs creation well below desirable levels, and the inflation rate dangerously low, the Fed is being teed up to ease further with risks disproportionately weighted toward a need to act.
The Fed had already set the table for another round of quantitative easing; last week’s employment report and today’s consumer price data have done nothing to diminish the likelihood that we see some form of formal intervention as a result of their November meeting.
The small buffer between current price levels and a potential onset of deflation could wither quickly if economic growth were to falter further.
Consumers opened up their wallets for the third consecutive month, as retail sales exceeded expectations and provided a glimmer of optimism in September.
The Fed appears resolute to do all it can to fan the cinders, and reignite the slowing economic growth. Whether or not those efforts are successful remains to be seen.
There is some risk that further quantitative easing is like pushing on a string in the near term, while the longer term risks of Dollar devaluation and an unwanted degree of inflation remain concerns.