by Calculated Risk on 6/13/2013 07:36:00 PM

From Victoria McGrane at the WSJ: Fed's Bond-Buying Wild Card: Inflation Expectations

"It is no longer clear that inflation expectations are so stable," Jan Hatzius, chief economist at Goldman Sachs Group Inc., said in an interview. Market-based measures of inflation expectations are now on "the low side of comfortable." In a note to clients June 10, he predicted that expectations of lower inflation are likely to make Fed officials less willing to pull back on the bond-buying programs out of fear it could destabilize those expectations about future inflation.

If there is a concern about inflation, it is that inflation is below the Fed's target (those predicting hyperinflation have consistently been wrong). With the unemployment rate at 7.6% and inflation falling, it is very unlikely the Fed will reduce their monthly asset purchases any time soon.

Click on graph for larger image.

This graph shows the year-over-year change for four key measures of inflation for April: median CPI, trimmed-mean CPI, core CPI and core PCE. On a year-over-year basis, the median CPI rose 2.1%, the trimmed-mean CPI rose 1.6%, and the CPI less food and energy rose 1.7%. On the graph, Core PCE is for March - core PCE for April was at 1.1% year-over-year.

On a monthly basis, median CPI was at 1.8% annualized, trimmed-mean CPI was at 1.0% annualized, and core CPI increased 0.6% annualized.  Core PCE for April increased 0.1% annualized.

Friday economic releases:
• At 8:30 AM, the Producer Price Index for May will be released. The consensus is for a 0.2% increase in producer prices (0.1% increase in core).

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for May. The consensus is for a 0.2% increase in Industrial Production, and for Capacity Utilization to increase to 77.9%.

• At 9:55 AM, the Reuter's/University of Michigan's Consumer sentiment index (preliminary for June). The consensus is for a reading of 84.5, unchanged from May.