What to Watch for As QE2 Ends

Inflationary pressures. Last month's inflation data was mixed. In May, the Consumer Price Index (CPI), which measures the average change in prices over time of goods and services, rose 0.2 percent, its slowest increase since November. The CPI is 3.6 percent higher than it was a year ago. But core inflation—the index for all items, less food and energy—increased 0.3 percent in May, its largest increase since July 2008. The Fed follows core inflation more closely, and sees it as a better predictor of prices over the long term because it strips out food and gas prices, which tend to be quite volatile at times. Schreft says the rate of inflation will be important to watch in the second half of the year. "Whenever core inflation creeps up, people do pay attention," she says.

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