Core CPI may be under control, but the Federal Reserve isn’t convinced that the war on inflation is over just yet.
The central bank’s “predominant policy concern remains the risk that inflation will fail to moderate as expected,” today’s FOMC statement advised. That’s a verbatim repeat of what the Fed said after the last FOMC meeting in May. But this time it added a proviso: “Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.”
The warning is all the more striking coming just 13 days after the encouraging report on May’s reading of core inflation, the Fed’s preferred prism for viewing monetary-policy-relevant pricing trends. More than a few analysts reasoned that after that heartening report on core, the central bank was home free. But now we’re told that any cheering was premature.
“The Fed is signaling it wants it proven first that inflation is down and will stay down,” Gerald Lucas, senior investment strategist in New York at Deutsche Bank, told Bloomberg News after the FOMC release.