Fed’s Cook: Current policy is well positioned, attentive to inflation expectations

• At some point it will be appropriate to cut
• Timing of policy adjustments wil ldepend on data and outlook
• Rise in inflation expectations would imply keeping policy restrictive for longer
• Inflation has slowed, labor market tightness has eased
• Expect disinflation trend to continue
• Expect 12 month inflation moving sideways for the rest of the year, slowing more sharply next year
• Expect 3 and 6-month inflation rates to move lower on a bumpy path

This is the usual rhetoric from the Fed but her comment on 12-month inflation is an important one to keep in mind. Year-over-year CPI numbers are always including many base effects that look backwards 12 months. If her forecast is right and inflation moves sideways, that will create a narrative of ‘stalled’ progress but that won’t really be the case, so there should be an opportunity there.

This article was written by Adam Button at www.forexlive.com.