Overview
- On Friday, Vice Chair Michelle Bowman said she can 'look through' a short-lived energy-driven inflation bump but warned she would change course if disruptions persist into the second half of the year.
- Kansas City Fed President Jeffrey Schmid argued policy should remain restrictive and proposed using the Fed's balance sheet as an extra tool to slow price growth if the oil shock proves persistent.
- Recent data show inflation pressures rising, with the PCE price index at 3.8% year-over-year in April and a New York Fed underlying-inflation gauge near 4%, raising the risk the energy shock spreads to broader prices.
- Financial markets have moved away from pricing near-term rate cuts and now expect a longer period of higher rates or possible increases, lifting long-term yields and raising borrowing costs such as mortgages.
- With Kevin Warsh newly installed as Fed chair and multiple April dissents on the record, the committee enters the June 16-17 meeting divided and will base the next steps on incoming inflation data and the duration of Middle East disruptions.