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Investing Specialists

The Last Thing the Fed Should Be Worried About: Deflation

The current run of tame inflation will likely end by the end of the year.

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It wasn't a great week for markets, with most international equities, commodities, and bonds registering declines. U.S. markets were able to eke out just a tiny gain. Worries about a Fed rate increase and lackluster economic activity around the world kept a lid on weekly returns. Markets were particularly disappointed in a speech by Federal Reserve Chairwoman Janet Yellen suggesting that the first-quarter slowdown was temporary and that rates are likely to have to be raised sometime this year. Not exactly a surprise.

In economic news, the market was disappointed in the Markit Worldwide Purchasing Manager Reports that suggested various stimulus measures may have stopped the economic slide but that growth wasn't exactly bursting out all over. This week's U.S. news was mainly a mixed bag from the housing sector, with housing starts coming out of their weather-induced stupor while existing-home sales slumped modestly in April compared with a too-good-to-be-true number for March.

Robert Johnson, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.