Several headlines yesterday highlighted the Federal Reserve’s emphasis on inflation after announcing no policy change in the Fed Funds rate following its June FOMC meeting. But reports of the Fed’s inflation concerns appear overblown as there was no action attached to it.
Evidence of a significant elevation in inflation was right there for the Fed to see back in September when it chose to embark on an historically aggressive easing campaign. Just because it chose to ignore inflation or at least place it on the back burner to worry about on another day and deal with the more immediate concerns of a recession doesn’t mean it wasn’t there.
Fed Funds futures have a 25-basis point rate increase priced in by yearend. It seems to us that those in the market who think the Fed can follow its aggressive easing cycle with a quarter point increase and that will shore up the dollar are fooling themselves.
There has been a lot of talk about a rebounding dollar but it probably will take the same type of commitment to fight inflation as the Fed showed in trying to ward off a weak economy. That would involve an aggressive tightening not hawkish talk with nothing to back it up.