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FOMC: We Are Not Declaring a Victory on Inflation

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Jun. 14 2018, Updated 3:20 p.m. ET

FOMC’s statement on inflation

The FOMC’s June statement was released on June 13, and the outlook for inflation remained upbeat. The highlight of the comments on inflation was the statement from FOMC Chair Jerome Powell, who said that he was not ready to declare victory on inflation.

The statement indicated that on a 12-month basis, both inflation (CPI) and core inflation (which excludes food and energy) moved closer to the symmetric inflation (TIP) target, while the indicators of long-term inflation (VTIP) remained unchanged.

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Projection changes for inflation

The Summary of Economic Projections report released along with the FOMC’s statement indicated that inflation forecasts had been revised higher, with the forecast for 2018 being revised to 2.1% from 1.9% in March. The median expectation for inflation (IPE) in 2018 was 2.1%, and the same rate was expected by members for 2019 and 2020 as well.

Outlook for inflation

The key points that calmed investors’ fears about a faster pace of rate hikes were the assurances from Powell that the Fed would not overreact to PCE (personal consumption expenditure) core inflation moving above 2% and that there had been no formal discussions at this meeting to set a price target.

A low unemployment rate and rising wages are likely to increase price pressures in the months ahead, which could lead to higher inflation (SCHP) levels and force the Fed to act sooner than expected. The possibility of a fourth rate hike in 2018 has increased after this June meeting, and another few months of strong inflation growth could lead to a faster pace of rate hikes.

In the next article, we’ll analyze the FOMC’s outlook on the US job market.

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