The two paragraphs below are excerpts from the Fed’s “Staff Economic Outlook” section of the FOMC meeting minutes published today. The Fed is disingenuous in that it does not acknowledge the fact that it inflated the money supply, thus resulting in higher prices. In fact, years ago the Fed used to define inflation as “inflation of the currency”. Today, the Fed has absolved itself as being the cause of higher prices. It’s devaluing of the currency through excessive money printing has nothing to do with higher prices for goods and services if you believe the Fed. Higher prices are primarily driven by supply chain issues if you believe the Fed. Somehow this Fed has convinced the markets that 8.5% CPI is no big deal. Not only is 8.5% CPI a big deal, it is under-reported and is not headed back down to the Fed’s 2% target any time soon. The best thing the Fed can do is lift rates in August.
Total PCE price inflation was expected to be 4.8 percent in 2022, and core inflation was expected to be 4.0 percent. Core PCE price inflation was expected to step down to 2.6 percent in 2023 and to 2.0 percent in 2024; the projected deceleration in core prices was attributable to the anticipated resolution of supply–demand imbalances, a labor market that was expected to become less tight over the projection period, and a projected decline in import price inflation. Total PCE inflation was expected to decline to 2.2 percent in 2023 and to 1.9 percent in 2024, reflecting the anticipated slowing in core inflation and a projected rapid deceleration in consumer food and energy prices in coming quarters.
The staff continued to judge that the risks to the baseline projection for real activity were skewed to the downside, noting that supply chain bottlenecks, Russia’s war against Ukraine, weak incoming data on spending, and the tightening in financial conditions since the start of the year supported this assessment. The staff viewed the risks to the inflation projection as skewed to the upside given the persistent upward surprises seen in the inflation data, the possibility that inflation expectations would become unanchored as a result of the large increase in actual inflation over the past year, and the risk that supply conditions would not improve as much as the baseline projection assumed.