The Latest Outlook for Inflation

What might we expect from inflation over the course of the next year or so, barring any exogenous shocks, such as geopolitical concerns affecting the price of oil, or natural disasters that damage crop production? Will high unemployment keep inflation down, or conversely, will the prior effects of Federal Reserve actions eventually work their way through the system to send inflation higher?

These are some questions the Dallas Fed sought to answer in a recent paper, "Inflation, Slack and Fed Credibility." Its findings: High unemployment, coupled with expectations that the Fed will be successful in controlling inflation, might result in inflation coming in at a bit less than 1.5% over the 12 months from the third quarter of 2011 to the same quarter in 2012. (Of course, there is a wide confidence interval around that estimate, so be careful not to be too precise with that forecast.) Let's take a closer look, beginning with where we are now....656 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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