EUR 57.00 For Business Accounts Only

Subtly Lowering the Bar

MIG sensed a subtle change in July’s FOMC statement. The Committee adopted slightly different language around inflation. They seemed to caveat that measures of core and headline inflation were falling “on a 12-month basis”.  At the time, we thought they might be indicating a distinction between a tumbling annual rate and potentially more perky monthly changes. If so, it would effectively lower the bar for a December rate hike. That is, so long as the monthly changes were positive, the Fed may feel comfortable raising policy rates then – even if the annual rate of inflation remained stagnant.

This subtle change went largely unnoticed by others and we hadn’t given it much more thought - until it resurfaced again this week. President Dudley seemed to go out of his way to favor “sequential” changes to inflation over sluggish annual measures. While it is unclear the Fed’s reaction function has been altered, the fact that President Dudley raised this point again makes it notable and worth watching going forward.