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In December the consumer price index remained unchanged for the second consecutive month. Headline CPI has failed to register positive growth for three consecutive months causing the year ago change from December 2010 to now be 3.0%. Core prices rose by 0.1% in December, moderating from November’s 0.2% increase. The year ago change for core prices held at 2.2%, an acceptable level for policymakers.


December’s slight increase in core prices was more than offset by falling energy prices, which fell 1.3% in December. Energy prices have now risen 6.6% year-over-year, significantly less than the 19.6% year-over-year gain reported in September. Food prices rose by 0.2% in December, slightly higher than the pace of 0.1% seen in the two previous months.

Price appreciation in core goods was driven by services, which saw prices rise 0.3%, an increase from the 0.2% reported last month. This was partially offset by a 0.2% fall in the price of goods, the first decline in three months.

Read the report.

The Federal Open Market Committee took no new action at its March 19-20 meeting. No new action was expected today as the Fed continues its bond buying program, dubbed QE3. The FsayaC noted that economic activity has continued to expand at a moderate pace in recent months, which has led the unemployment rate to improve. Despite the improvements the unemployment rate remains elevated.

QE3 currently adds $85 billion to the Fed’s balance sheet each month. The $85 billion each month is comprised of $40 billion in agency mortgage-backed securities purchases and $45 billion in long-term Treasury securities purchases. In his press conference Chairman Bernanke noted that the amount of the purchases may vary in the future depending on economic conditions. He noted that although we have seen improvement in recent months, the Fed will wait to ensure the improvements are sustained before adjusting purchases accordingly.

The FsayaC held its pledge to keep interest rates at near-zero levels as long as unemployment remains above 6.5% and inflation remains less than 0.5% above the committee’s long-run goal of 2%. The inflation portion of this is not a concern for the Fed as “Inflation has been running somewhat below the Committee’s longer-run objective.” The press release also remarked that longer-term inflation expectations continue to be well anchored.

There was one dissenting vote, from Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

FsayaC Fed Funds Rate Projections


Read the FsayaCs entire statement below.

Inflation slowed in July as consumer prices failed to appreciate for the fourth consecutive month. Falling energy prices continued to weigh on overall inflation, although less so than previous months. Core inflation slowed to 0.1% in July, after four consecutive months at 0.2%. Overall consumer prices have now risen just 1.4% from year-ago levels, down from the 1.7% reported in June.



Falling energy prices continued to restrain inflation in July, although by less than in the previous three months. Energy prices fell just 0.3% in July after averaging a drop of 2.5% over the previous three months. Food prices appreciated 0.1% in July, after failing to grow in June.

Core price appreciation was driven by a 0.1% rise in the prices of services. Goods prices were stagnant in July. Both have slowed from June where each grew 0.2%.

Read the BLS release.

The Federal Open Market Committee (FOMC) made no changes to policy at its March meeting, leaving interest rates at low level and announcing no new actions. “The committee expects economic growth to remain moderate over coming quarters and then to pick up gradually.” The unemployment rate has declined in recent months but remains elevated.

The target federal funds rate remains at 0 to ¼ percent. The committee reaffirmed its view that policy rates would remain “exceptionally low” through late-2014.

Inflation “has picked up somewhat,” due mostly to higher prices of crude oil and gasoline. Energy prices, however, are expected to influence prices “only temporarily,” and will subside later this year. Longer-term inflationary expectations remain stable.

Policymakers acknowledged some improvement in housing, but also noted that the market remains “depressed.” They also warned that “strains in the global financial system continue to pose significant downside risk to the economic outlook.”

The following is the Fed Funds forecast, with each dot representing the forecast of an individual member.


Chairman Bernankes press conference

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Read the release.