Bernanke remains on his message, pointing to a still sluggish labor market where the unemployment rate will remain elevated for a while and continues to believe that inflation will remain subdued. He does say that they’ve “seen evidence that a self sustaining recovery in consumer and business spending may be taking hold” but follows with the caveat of a job market that has improved “only slowly.” On inflation, he mentions the rise in commodity prices but then says “nonetheless, overall inflation is still quite low and longer term inflation expectations have remained stable.” He then cites, in the rear view mirror, the low rate of the PCE deflator and core CPI for the last 12 months. He also mentions modest wage growth as reason for his view. Bottom line, his benign view of inflation and concerns with high unemployment gives his reason for current Fed policy. The market has begun to take issue with this outlook.
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