Headline CPI in the US in May was 8.6%, compared with 8.3% in April and 8.5% in March, suggesting the total inflation stuck at a high level in the past three months. Considering substantial increases in energy prices and activities related to economy opening from the COVID, the headline inflations are not too too bad.
Though the Fed’s goal is to control “total inflation” within 1-3%, operationally the Fed actually sets monetary policies based on “core inflation”, the part of inflations excluding volatile components such as food and energy. Core inflations in the past three months are 6.5%, 6.2% and 6.0%, clearly indicating a downward trend.
Based on the core inflation dynamics, the Fed is likely to stick with a 50 basis points hike of its policy rate in the July FOMC meeting. The Fed is also likely to maintain a tough communication and plans to do more in order to achieve its inflation mandate, however they might be constrained by pressures in economic growth. Unemployment rate is low, however, it is a delayed indicator of economy health. Afterall a few prominent CEOs have the same bad feeling of the economy already.