Modest Inflation Paves Way for More QE

This morning March CPI showed an unanticipated decline of 0.2%. Year-over-year CPI came in a 1.5% versus 1.6% expected. March CIP Ex-food and energy was also light at 0.1% vs. 0.2% expected. In the view of Michael Hanson, an analyst with BofA ML, the low inflation reading, combined with slow economic growth, will allow the Fed to maintain its current monetary policy well into 2014.

"We expect the Fed to acknowledge that it is currently missing on its price stability as well as employment mandate, thereby warranting a continuation of asset purchases well into next year," said Hanson.

Minutes from the Fed's last meeting suggested that several members favor tightening by the end of the year. However, the most recent minutes dated from the March 19-20 meeting, and in the face weak March jobs data and persistent high unemployment, along with chatter about deflation, Wall Street is reassessing the Fed's stance.

"With wage growth soft and still sizable slack, the inflation data are suggesting the Fed will need to continue with QE or even add more, not scale it back soon," said Hanson.

Comments by Fed's Dudley at the Staten Island Chamber of Commerce event yesterday help support BofA ML's view.

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• BofA says there is a continued strength in buybacks
• Fed hawks and doves: US central bankers see 'no urgency' to cut
• Wall Street closes higher as investors digest earnings, megacap outlook