Rob Carnell, Chief International Economist at ING, suggests that with headline US inflation at 1.4% YoY, and the core inflation rate now 2.2% YoY, recent concern about the possibility of negative US rates seems at best premature, and at worst, misguided, in our view. Key Quotes “US CPI for January came in a little stronger than had been expected, with the headline rate unchanged on the month, and the core rate rising by 0.3% MoM. Headline inflation in January is now double that in December at 1.4% YoY, with the core rate now at 2.2% (up from 2.1%). Inflation has been one of the factors the Fed has cited for its cautious stance towards monetary policy changes. But despite these latest inflation increases, concerns over the ebbing strength of domestic activity may start to provide more of an excuse for further foot dragging, whilst external demand and financial market turbulence provides yet another excuse for the Fed to do nothing for the foreseeable future. Further, without a more noticeable pick-up in energy and commodity prices, the base effects, which are an important part of the latest YoY pick-up in inflation, will be much less supportive in the coming months, and we expect to see headline inflation heading back below 1% YoY as we move into the second quarter of the year, giving the Fed the excuse it needs to keep doing nothing, even if growth does begin to look a little better. In the meantime, recent chatter about negative rates in the US, and the downwards impact this has had on rate expectations and yields, may begin to ease a little, at least pending the decisions of other major central banks – most notably the ECB’s forthcoming March rate meeting.” For more information, read our latest forex news.