Fed: Inflation expectations are broadly consistent with 2% goal

The latest Monetary Policy Report from the US Fed highlights the US central bank’s stance on the current economic and inflation outlook, and what it will take for Fed policymakers to feel comfortable enough to begin cutting interest rates.

Key highlights

Inflation expectations are broadly consistent with 2% goal.

Labour market remains tight, demand has eased, and supply has trended higher.

6-month Core PCE rose 2.5% at an annualized rate, short-term inflation measures may exaggerate idiosyncratic temporary factors.

It remains inappropriate to reduce target range until Fed has greater confidence inflation will move sustainably toward 2%.

Higher rates, tighter underwriting, zoning and other regulations have constrained housing supply.

Risks to achieving Fed goals moving into better balance, Fed remains attentive to inflation risks.

Strong labour market, work from home, and cash payments have supported housing demand, limiting effect of higher rates.

Rapid adoption of new technologies like AI and robotics could boost productivity growth above current moderate pace.

Softening in market rents points to a continued deceleration in housing services prices over the next year.

Ongoing softening of labor demand and improvements in labor supply should contribute to a further slowing in core services price inflation.