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The September readings for the Personal Consumption Deflator were generally in line with expectations. As this chart shows, it's hard to get excited about either too much or too little inflation at this point, since the Fed's preferred measure, the core deflator, is well within its target range, and the headline measure is only a point above. Over the past six months, the core deflator has increased at a 2% annual rate, while the headline measure has increased at a 2.4% pace, so on balance we can say that inflation is somewhat on the high side, but not by enough to warrant any change in monetary policy; no changes, neither to ease nor to tighten, are called for based on these numbers. Since nominal GDP has increased 5% over the past year, deflation risks are essentially nonexistent.

If there is another shoe to drop here, it is likely to be concern that inflation pressures are picking up, and that the Fed should pay more attention to exiting its quantitative easing strategies, rather than launching another one. That case is bolstered by the renewed weakness in the dollar and the nascent pickup in commodity prices, which are still quite high from an historical perspective.