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Fed Taper May Have to Wait: Chart of the Day

NEW YORK (TheStreet) -- The jobless rate has fallen while core inflation remains well below the Federal Reserve's 2% target.

Because the economy could still slip back into deflation, the Fed may have to wait longer, beyond December, to taper, says New York-based UBS economist Drew Matus.

"We believe the still-low inflation is likely to preclude a taper at the December meeting as a still cautious Fed awaits more evidence that recent gains in the labor market and consumption can be sustained," he explains.

Matus expects the Fed's first reduction of its $85 billion-a-month bond-buying stimulus program to come at the central bank's Jan. 29 policy meeting. The bank, he says, would prefer to avoid any action that could derail the holiday shopping season.

That said, Matus does concede that the odds of a December taper has risen to 33% in light of stronger economic data. Still, any initial wind-back should be modest, at most a $10 billion reduction concentrated in Treasuries, he forecasts.

The November consumer price index release will accompany the kickoff of Tuesday's Federal Open Market Committee meeting. Matus is expecting a tame 0.1% rise in the overall CPI and a 0.2% increase in the core.

-- Written by Andrea Tse in New York.

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