Fed eyes growing inflation risk
Fed eyes growing inflation risk
Fed: Inflation risks have ‘increased’
The Federal Open Market Committee left rates unchanged this afternoon (no surprise) and made it quite clear that the next move, whenever it comes, is likely to be up (again, no surprise).
There were some notable changes to the Fed statement, conveying the idea that rates will eventually move up.
In April, the Fed said economic activity “remains weak” but today it was a much sunnier “continues to expand, partly reflecting some firming in household spending.” See what upward revisions to GDP will do?
The Fed still expects inflation to moderate (really?), but rather than saying “in coming quarters” they now say “later this year and next year.” Of course, that won’t happen without some cooperation from oil prices and the Fed notes the “continued increases” in energy and commodity prices and the “elevated state” of inflation expectations as adding to the uncertainty.
But the key statement is this one.
“Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased.”
What the Fed is saying is that they’re not going to cut interest rates again and are inclined to raise interest rates. But we already knew that. What we don’t know, and what the Fed didn’t say, is when. I still think it will be awhile. The Fed’s tough talk is the only tool they can really use right now.