21 Sep WHY ISN’T INFLATION HIGHER?

The Federal Reserve’s (Fed) next Federal Open Market Committee (FOMC) meeting will take place on Tuesday and Wednesday (September 19 – 20) and will be followed by the release of the FOMC policy statement on Wednesday at 2:00 p.m. ET. Along with the statement, the FOMC will release a new set of economic forecasts (gross domestic product [GDP], the unemployment rate, inflation, and fed funds projections, also known as the “dot plots”). Fed Chair Janet Yellen will also hold a press conference — the third of four in 2017 — at 2:30 p.m. ET.

Markets are primarily focused on the potential for an announcement about balance sheet normalization at the September meeting, though market participants will also be watching Fed comments related to inflation and its impact on the future path of rate hikes. Rate hike expectations for the September meeting are currently at 0%, in large part due to inflation holding stubbornly below the Fed’s 2% target [Figure 1]. Headline inflation did show a move higher in August, to 1.9%, which has helped increase the market’s expectation for a rate hike in December 2017 (currently at 57%). However, a portion of the rise of inflation was due to increasing gasoline prices caused by refinery shutdowns related to Hurricane Harvey.

View the full weekly economic commentary here.

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