US inflation remains in Goldilocks territory – taper train on track

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Annual core inflation in the US stands at 1.7% in March. This level, just below 2%, is good news for the US dollar: ongoing stability and no danger of deflation nor high inflation.

The lack of deflation danger which looms over the euro-zone and which Japan is fighting enables the Federal Reserve to continue focusing on its second mandate: employment. Some Fed officials feared that the Fed is not paying enough attention to low inflation. At least for now, these fears do not seem justified, nor does further monetary stimulus.

Core inflation rose by 0.2% in March, stronger than 0.1% expected. The y/y was expected to stand at 1.6%, but it advanced to 1.7%. Headline Consumer Price Index (CPI) also exceeded estimates with a rise of 0.2% and the annual level bounced back from 1.1% to 1.5% in March, more than 1.4% predicted.

With stable and solid inflation, the Fed can certainly continue withdrawing from the bond buying program. It is important to remember that after the third taper of QE, the central bank is still buying bonds at a rate of $55 billion per month. In addition, it has a huge balance sheet from previous operations and an interest rate running at near 0% for around 5 years. This is a lot of stimulus.

With this amount of money in circulation, others feared that inflation could erupt and some even painted a picture of Zimbabwe style hyperinflation. Needless to say, there are no signs of inflation anywhere. With the amount of slack in the economy, it would probably take much more to make meaningful price rises.

All in all, we can expect QE to fully end in October 2014. Regarding the first rate hike, this is still an open question.

More: What Yellen’s New Office Means for Forex Traders

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Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

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