Federal Reserve Chairman Ben Bernanke may be perplexed in what he should do or whether a taper is the right choice given the recent mixed economic data. The Federal Reserve’s target for inflation will need more time for fulfillment as the cost of living in the U.S. rose less than analysts expected in August.
The consumer-price index increased only .1 percent, according to the Labor Department. Analysts were expecting an increase of .2 percent, the same level as recorded in July.
The Federal Reverse will meet over the next two days and combing over recent economic data to determine whether a taper for the massive $85B per month purchasing program is needed. Additionally, the Fed will need to monitor prices to prevent slippage to ensure that the U.S. does not end up in disinflation, which will hinder growth expansion.
Although there is speculation that some sort of taper will happen at tomorrow’s FOMC minutes meeting, it is unlikely that it will be substantial enough to derail the financial markets more than a knee-jerk reaction upon release. Fed Chairman Ben Bernanke is more than likely to continue the current trend: allowing accommodative monetary policy coupled with near-zero interest rates as growth sputters around the world.
In regards to the labor market that has been a teeter-totter, Ryan Wang of HSBC Securities said “there’s still quite a bit of slack in the labor market, wage gains are positive but have been modest.” Wang also notes that fact that the inflation rate is well-below the Fed’s two percent target: “the Fed is committed to defending their 2 percent inflation goal from both sides, and currently inflation is running below that goal.”
Bernanke has said that “very low inflation poses risks to economic performance,” he told lawmakers July 17. “We will monitor this situation closely.” And he also said the sub-par inflation could tie down capital investments which could signal deflation for the US.