“Pricing is being driven by something other than weakness” in demand, said Sam Coffin, a UBS economist in Stamford, Connecticut. Influences on the supply side, such as automakers discounting to gain market share or overseas apparel makers cutting costs, were responsible for about 75 percent of the slowdown in inflation in four categories -- financial services, motor vehicles, clothing and health care, he said in a study published in May.
The case for tame inflation ahead is buttressed by stabilizing housing costs, one of the few forces that was underpinning price increases in recent years. Not counting housing, inflation would have decelerated another 0.4 percentage point in the two years ended in December, according to data compiled by Bloomberg.
Slowing prices in the U.S. may give the Fed room to maintain historically low borrowing costs even as the jobless rate races down to a 6.5 percent threshold that policy makers have said must be reached before they will consider raising the target interest rate.
The Federal Open Market Committee said Jan. 29 it will cut monthly bond-buying by $10 billion to $65 billion, citing labor market improvement and a pickup in growth. The trimming keeps the Fed on pace to end its unprecedented asset purchase program by the end of the year.
DYI Comments: With looming deflation on the horizon interest rates will drop add on a stock market that is poised for a smash this will have a double effect of lowering rates. My forecast is for the 10yr and 30yr bond yields to drop below 1% and 2% respectfully. Deflation and a flight to quality as this market heads south will drive rates lower.
DYI
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