Markets were nearly unchanged after the Federal Open Monetary Committee’s 2 pm statement this afternoon.  As expected, the Fed left the overnight target rate unchanged at 1.25%, saying that future changes “will take into account…labor market conditions, indicators of inflation pressures and inflation expectations,” among other things.

“Inflation on a 12-month basis is expected to remain somewhat below 2% in the near term but to stabilize around the Committee’s 2% objective over the medium term,” the statement added.

With core inflation in the US running at just 1.3% that medium term might turn into well done. As Asia Unhedged noted Monday, core inflation expectations embedded in the price of inflation-protected Treasury bonds have been falling throughout 2017 (we measure that by stripping out the effect of oil and measuring the trend in the residual).

Goods prices continue to fall, especially for durables. Housing and medical prices are rising, but at a slower rate than last year. The structural reasons for falling prices (Internet retailing, efficient manufacturing, an older and more risk-adverse workforce) continue to keep inflation low in the US as well as Europe. Bank credit, meanwhile, remains stagnant, as the chart shows. That is extremely unusual during a business expansion. Monetary policy simply isn’t as important as it used to be and the Fed might as well take a long vacation.