Unlike a number of other nations – especially some countries in Europe – the US is currently not dealing with general price declines. However, the risks of such an occurrence have increased materially. This for example can be seen in the intermediate-term market-based inflation expectations, which have fallen to 2009 levels – when deflation was a serious concern.
There has been a bit of confusion about what today’s FOMC announcement means with respect to Quantitative Easing. The statement says that ” the Committee decided to conclude its asset purchase program this month”. It’s important to point out that while this is the end of the Fed’s bond purchases (for now), the US monetary expansion has ended this past summer. The outcome is visible in the the banking system’s excess reserves, which flattened out around July.
As discussed here back in April, US labor markets continue to heal, with Friday’s payrolls gains putting 2014 on track to be the best year for job growth since the late 90s. Now many are asking just how far is the employment situation from “normalizing”. Of course it all depends on the metrics used….
Economists and central bankers tend to be less focused on what consumers pay at the grocery store because food and energy prices have historically been more volatile – remember, it’s just “noise”. However what they can’t ignore is how shoppers view inflation – i.e. inflation expectations. And food prices have a significant impact on households’ views on future inflation.