Consumers benefitted from falling prices at the pump – a timely development supporting spending heading into the critical holiday shopping season.
Coming out of its meeting earlier this week, the Fed indicated that its expectations for inflation over the next few years would be near or slightly below its target. Against a backdrop of a modestly growing economy, such conditions should afford the Fed ample room to follow through with the easy policy stance they have outlined.
Lower inflationary pressure is a real positive that should provide modest relief for households dealing with limited income growth.
In simplest terms, inflation is not a problem. The softening in the global economy this year has provided relief in cyclically-sensitive commodity prices and wage pressures are exceptionally limited, substantially reducing the risk of unwanted inflation taking root.
While this is a positive report, it’s unlikely to do much to move markets. Other positive data in recent days has had limited impact on sentiment, as investors watch developments in Washington with a wary eye.
Understandably, the market is increasingly focused on the looming fiscal cliff and discounting the probability of a deal getting done. The potential that both parties may stick to their guns appears to have increased over the last month, fanning the flames of uncertainty as we rapidly approach the New Year.
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