Inflation Eases, Creates Space For Fed Stimulus

Consumer prices were flat in November as Americans paid less for cars and gasoline, a further sign of a cooldown in inflation that could give the Federal Reserve more room to help a still weak economy.

The Labor Department said on Friday the Consumer Price Index was unchanged last month. Economists had expected an increase of 0.1 percent. Prices spiked earlier in the year, but the report showed the trend has shifted. Over the past 12 months, prices have risen 3.4 percent. That marked a second monthly decline from a three-year high in September.

The report "leaves the Fed ample cover for any additional monetary policy accommodation they may see warranted in the New Year," said Ian Lyngen, a bond strategist at CRT Capital Group in Stamford, Connecticut.

Still, some of the data could give pause to policymakers at the central bank. Economists polled by Reuters this week saw inflation slowing to 2.6 percent during the first quarter of next year, which could help convince the Fed to do more to bring down the country's 8.6 percent unemployment rate.

Prices for U.S. government debt rose slightly on Friday as investors saw the data opening the door a bit wider to Fed stimulus. U.S. stocks rose and the dollar fell against the euro as investors remained on edge over the euro zone's debt crisis. The U.S. recovery has picked up momentum over the past few months, but the Fed on Tuesday warned about turmoil in financial markets abroad and it kept the option of further monetary action on the table.

In an appearance before Congress on Friday, New York Federal Reserve Bank President William Dudley warned that a worsening of Europe's sovereign debt crisis could hit U.S. banks, potentially tightening credit for households and businesses. In recent months, cooling gasoline prices have left more money for consumers to spend on other things, helping the economy gain some steam. In November alone, gasoline prices fell 2.4 percent.