- Inflation has been above the Fed's 2% target for more than five years.
- PCE inflation continues to print at the recent pace, neither accelerating nor cooling.
- A U.S.–Iran stalemate remains the path of least resistance, as Iran and Oman agreed to temporarily reopen the Strait of Hormuz, but the White House has threatened to bomb Oman if it 'gets in the way.'
- Fed Chairman Kevin Warsh is scheduled to speak at the meeting, but may not offer new details on Friday.
- The Iran conflict is an offsetting factor keeping energy prices elevated and delaying disinflationary relief.
- A potentially bigger problem for inflation is the bond market’s growing concern over U.S. government debt and the lack of political efforts in Congress to tackle the mounting red ink.
- Uncertainty about how, when, or if the Federal Reserve will tame inflation could keep Treasury yields higher for longer.
U.S. inflation remains steady at 3.7% year-over-year, according to the Personal Consumption Expenditures Price Index, the Federal Reserve's preferred measure.17
Disinflation has stalled as geopolitical tensions, particularly the ongoing Iran conflict, keep energy prices elevated.5
"Inflation isn’t accelerating, but neither is it cooling,"
The Fed's margin for error is thinning as inflation has exceeded its 2% target for over five years.
The bond market is increasingly concerned about U.S. government debt, with rising Treasury yields reflecting uncertainty about the Fed's ability to manage inflation.6
"Another issue that could keep Treasury yields higher, or rising, for longer,"
Fed Chairman Kevin Warsh's upcoming speech is anticipated to clarify the central bank's strategy, but his recent comments suggest little new guidance may be forthcoming.4
As the Iran conflict continues without resolution, the potential for meaningful disinflationary relief remains distant, complicating the Fed's efforts to stabilize the economy.
“The Iran conflict and a U.S.–Iran stalemate over the Strait of Hormuz are delaying disinflationary relief, with the White House threatening to bomb Oman if it 'gets in the way.' Meanwhile, bond market concerns over U.S. government debt and Fed uncertainty could keep Treasury yields higher for longer.”
