Inflation Calm

I won't say I told you so, but I did...............The Fed is now being stubborn and still talking big, rate cuts should still be in play.............

Fed's Preferred Price Gauge Dips Below 2% Into 'Comfort Zone'

The Fed's preferred measure of inflation dipped below 2% for the first time in three years in May, vindicating the Federal Reserve's decision to soften its description of inflation on Thursday.

At the same time, while personal incomes and consumer spending both grew in May, they did so a bit more slowly than expected.

The price index for personal consumption expenditures rose 0.5% in May compared to the prior month and 2.3% from a year earlier. Excluding food and energy, the "core" index rose 0.1% in May and 1.9% from a year earlier, the first reading below 2% since April, 2004.

The core PCE index is the Fed's preferred benchmark for inflation. Some Fed officials say their "comfort zone" for inflation is 1% to 2%. On Thursday, the Fed left its short-term interest rate target at 5.25% and dropped its description of core inflation as "somewhat elevated," but also warned it had yet to see convincing evidence the drop in inflation was lasting.

By GREG IP and JEFF BATER - WSJ
June 29, 2007 8:59 a.m.


For Rest of Story Link Here