Inflation has been above the Fed’s target for more than a year. The personal consumption expenditure index excluding food and energy prices, which the Fed monitors to get a sense of underlying inflation trends, has climbed 4.7% in the year to ‘in May.
And it is the least dramatic of the main measures of inflation. Prices climbed 8.6% in the year to May, as measured by the consumer price index, and the June figure, due out next week, could show further recovery .
Central bankers are increasingly concerned that high costs will feed through into consumers’ inflation expectations, making price increases harder to stifle. Once workers and businesses begin to believe that prices will rise rapidly year on year, they may change their behavior, seeking bigger wage increases and more regular price adjustments. This could make inflation a more permanent feature of the US economy.
The Fed wants to prevent this outcome. If he raises rates by 0.75 percentage points this month, it would bring interest rates back to a range of 2.25-2.5%, and officials have signaled they will likely raise costs borrowing by another percentage point by the end of the year.
“Supply and demand will be rebalanced and inflation will return to our longer-term 2% target,” Williams said. “It may take some time and could well be a bumpy road. »