At some point it will be appropriate to cutTiming of policy adjustments wil ldepend on data and outlookRise in inflation expectations would imply keeping policy restrictive for longerInflation has slowed, labor market tightness has easedExpect disinflation trend to continueExpect 12 month inflation moving sideways for the rest of the year, slowing more sharply next yearExpect 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.
