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Jun 21 2013

Assessing Deflation Risks for the U.S. Economy

Despite multiple rounds of quantitative easing (QE), the U.S. inflation rate has been plunging, with growth in the headline PCE deflator having dropped to a reading never seen outside a recessionary context. It is now at just 0.7%, well below the Fed's official 2% target announced in January 2012. Earlier, the Fed's unofficial focus was on core PCE inflation, which has now dropped to the lowest reading on record.

Meanwhile, inflation expectations have also declined, falling back to levels last seen well before the launch of “QEternity.” Even though Fed Chairman Bernanke suggested “tapering” could begin by year-end, for now QE is continuing unabated. What does this mean for U.S. inflation?

ECRI’s latest study assesses the reasons for the decline in inflation, reconciling the effect of QE and the U.S. economic outlook on U.S. inflation pressures. This ECRI study provides a clear answer to whether the downtrend in inflation is likely to persist, or if it will soon turn back up as some hope.

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Bloomberg Interview on Becoming Japan

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ECRI's Lakshman Achuthan joined Bloomberg TV this morning to discuss our recession call, and how the U.S. economy is now resembling Japan's "lost decades." More