The US Personal Consumption Expenditure Price Index is one of the Fed’s preferred measures of inflation. In the years since the financial crisis the Fed’s has been challenged bringing inflation near its’ 2% target. The recently released May reading came in at an annual rate of 2.3% which was slightly higher than consensus expectations and is the highest reading since April 2012. The eternal challenge for the Fed is maintaining acceptable levels of inflation yet this cycle they are committed to gradually raising policy rates while simultaneously winding down its’ bloated balance sheet. An added complexity is the lack of inflationary pressures elsewhere in the world which in turn, may allow the Fed to tolerate higher than target levels of inflation domestically.
