- 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.
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