Higher inflation is on the way. The Fed needs to make this clear before it raises rates.
The Federal Open Market Committee needs to update its communication to reflect rising inflation risks, as investors currently anticipate a flat rate policy over the next year. The Fed's current easing bias in communication may need to shift towards a more symmetric policy outlook, including the possibility of rate hikes.
The Federal Open Market Committee (FOMC) needs to update its communication to reflect the rising risks to the inflation outlook. Annual price increases have been above the Fed's 2% target for five years, and the Iran war oil shock is adding to structural changes and supply constraints across the U.S. economy. Labor supply is less abundant due to global demographics trends and America's immigration crackdown. The artificial-intelligence boom's forecasted energy needs exceed supply, unless there is a simultaneous investment boom in power generation. Investors currently anticipate a flat rate policy over the next year, despite these rising risks. The Fed's communication should be updated to include the possibility of rate hikes to help investors manage risk.
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