Salient to Investors:

Justin Wolfers writes:

The risk of deflation is greater than the risk of explosive inflation.

The Bureau of Economic Analysis revised its estimates for the personal consumption expenditures price index – the index the Fed targets aiming for inflation of 2 percent – to 0.1 percent negative in Q2, i.e. deflation. The PCE deflator is declining when the main conversation among policy makers is when and how to tighten.

While widespread deflation is not evident, the core PCE deflator, a better gauge of inflation, rose only at an annual rate of 0.6 percent. Over the past year, the PCE and core PCE deflators rose by 1.1 percent and 1.2 percent.

The Fed’s own estimates suggest it expects to continue undershooting the inflation target for at least 3 more years, and with millions needlessly unemployed, it needs to start panicking.

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