US OUTLOOK/OPINION: SMRA writes today – “In our view, inflation will
remain subdued for the next couple years. The high level of unemployment
limits any acceleration in wages and unit labor costs. Substantial
slack in product and labor markets is likely to persist through our
forecast horizon, 2011, and will continue to dampen inflation. Also, we
are unconcerned for now about the size of the Fed’s bloated balance
sheet, as some $1.1 trln in excess reserves are currently sitting idle
at the Federal Reserve, earning 0.25% interest. There is a non-trivial
risk the Fed will fall behind the curve in ‘mopping up’ this liquidity
as the economy recovers. But this is a longer-term concern that should
not threaten price stability over the next two years.”