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The Consumer Price Index for All Urban Consumers was unchanged in December, according to the most recent report from the Bureau of Labor Statistics. Before seasonal adjustment, the all-items index is up 1.7 percent for the past 12 months.
The CPI-U is a convenient proxy for inflation, and given the most-recent reading, market participants can assume that the Federal Reserve’s easy-money policy hasn’t yet overheated the economy. Last month, the Fed indicated that it would continue buying assets in order to keep interest rates low as long as the inflation rate stayed below 2.5 percent.
The ultimate goal of the Fed’s monetary policy is to keep credit accessible (cheap) and to lower the unemployment rate, currently standing at an official U-3 reading of 7.8 percent. Some economists, including regional Fed presidents, believe that this rate could come down to about 7 percent by the end of 2013. If the pace of job creation keeps steady at about 150,000 per month, then the Fed’s target rate should be seen sometime in the middle of 2014.
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