Recent statements from the Fed suggest that while core inflation rates remain elevated, it should moderate over time due to slower economic growth and lower energy prices. In short, it appears that Bernanke and Company have begun to initiate the “soft landing” that pundits and investors have hoped for…moderating growth and benign inflation. Although Friday’s third quarter GDP report showed tepid growth of just 1.6%, the weakness was almost entirely related to a 17% decline in residential construction. The slower-than-anticipated growth was offset in part due to tame inflation. The GDP deflator (inflation measure) was up at just a 1.8% annual rate, down from 3.3% in previous quarter.
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