CPI Decline in October

by Jay Pestrichelli on November 21st, 2013

October’s CPI data came in yesterday and for the first time since April saw a decline in the rate. In other words a rate of change that went below 0%. Here’s MarketWatch’s post after yesterday’s release. US consumer prices fall 0.1% in October.
This matters as it is one of the metrics the Fed is watching closely to measure the condition of the US economy; the other one is the US unemployment rate. Exiting chairman Bernanke has stated more than once that they are watching these two metrics as guides to how long they will keep the Fed funds rate at near zero levels and continue the quantitative easing program.

We’ve heard a few Fed presidents hint that as long as there is no damage being created by the QE program, there’s no rush to taper (i.e. lower the amount of bonds and mortgage loans it is buying). But let’s jump back and remember why the Fed is running the QE program. It is attempting to keep interest rates low to spur the economy and job growth. Below is a chart of the 10-year yield. Would you say they are successfully keeping interest rates low?
To me, it appears that interest rates are not going the way they intend. This is probably the biggest flag to me why the taper will not occur any time soon. Add to that they don’t believe the QE program is causing any damage to the inflation number and I don’t see any rush to end it.

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