Fed: No major changes to inflation wordings despite low inflation – Danske Bank

Analysts at Danske Bank suggest that in the FOMC statement, they will look for any new wordings on inflation, as low inflation remains the biggest obstacle for hiking further since growth remains above trend and employment continues to rise.

Key Quotes

“In July, the statement was changed from saying inflation ‘is running SOMEWHAT below’ 2% (our own emphasis) to just ‘running below’, which was interpreted as a smidgen dovish. Since then PCE core inflation has moved lower but the CPI data for August were more promising, as CPI core rose +0.2% m/m (and close to 0.3%), the biggest increase since February. Statements do not change much from meeting to meeting and we do not expect major changes at this meeting either, although risk is skewed towards a more dovish stance.”

“We think the statement will continue to say that the Fed is monitoring inflation ‘closely’. More interesting is Yellen’s press conference as in June she expressed confidence in the Phillips curve. However, if inflation continues to disappoint while labour market continues to tighten, it may be harder for her to justify this conviction. We do not expect big changes to the statement with respect to growth and the labour market.”