The FOMC said the “economic recovery is on a firmer footing and overall conditions in the labor market appear to be improving gradually.” This is an upgrade of their commentary in the Jan meeting. Their comments on spending on equipment and software and the housing market though were similar. With respect to inflation, the Fed acknowledged that “commodity prices have risen significantly since the summer” and specifically cited the “sharp run up in oil prices.” But not to worry the Fed says as they believe commodity inflation is “transitory” (no reason given) and that “longer term inflation expectations have remained stable, and measures of underlying inflation have been subdued.” They keep focusing on the core rate and apparently haven’t paid much attention to the rise in inflation expectations in TIPS before the Japanese earthquake and what was seen in the UoM confidence figure last week.

Category: MacroNotes

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2 Responses to “FOMC speaks”

  1. “measures of underlying inflation have been subdued”

    There must be some truth that the Fed pooh-bahs do not drive their own cars and do not shop in supermarkets….

    How long will it be before everything in a supermarket costs > $5? Will the Fed pooh-bahs even ever know?

    Their pensions should be negatively adjusted to food and energy inflation…..

  2. cthwaites says:

    I don’t think Fed wd ever look at U of M (which is very correlated to gas prices anyway) or TIPS b/e given the iliquidity in the TIPS mkt. They’ve said they’re going to keep an eye on core and so it’s hardly surprising that’s what they wd stick to. The test will can they react quickly if core starts to move rapidly.