US: Inflation looks firmer, unlikely to preclude the Fed from raising rates – Wells Fargo

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 10, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Córdoba) - Sam Bullard and Sarah House, economists from Wells Fargo, noted that price indicators show that inflation has not weakened in the US and it is not a factor precluding the Federal Reserve from raising interest rates.

    Key Quotes:

    “Inflation seems to be on slightly firmer ground since the Fed met in September. After another steep decline in July and August, commodity prices have generally been fairly stable. Prices for WTI oil have hovered near $45 per barrel, which should help push the monthly changes in inflation readings back into positive territory for October. In addition, the dollar, measured by the broad trade-weighted index, is back near the levels of late August.”

    “While we anticipate the dollar will appreciate further over the coming year as the Fed begins to tighten policy well ahead of many other major centrals banks, the strengthening is expected to be more gradual than the roughly 13 percent move seen over the past 12 months.”

    “Indeed, when looking at a broader range of core inflation measures, the PCE deflator is the only index to have slowed over the past year. The Dallas Fed’s Trimmed Mean PCE, which is adjusted to more closely track overall inflation over time than the traditional core index, has been steady around 1.7 percent this year. The divergence should give the Fed some confidence that inflation has not weakened to the extent indicated by the core PCE deflator.”

    “Before the Fed meets in December, there will be two additional reports for the CPI and one more reading on the PCE deflator. Unless these reports show definitive weakening in core inflation or commodity prices tumble again, we do not anticipate inflation to be a factor precluding the Fed from raising the fed funds rate”.
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