Fed on Course

(1) Victory dance at the Fed as inflation approaches 2.0% target. (2) Three more rate hikes this year, in June, September, and December. (3) Federal funds rate hasn’t exceeded core PCED inflation since March 2008. (4) No inverted yield curve in our outlook. (5) Mounting cost pressures more likely to come out of record profit margins than to push prices higher. (6) Regional surveys of “prices paid” reflecting higher commodity costs. (7) Employment Cost Index showing more of an upward trend in wage inflation than average hourly earnings. (8) Fed was right to expect reversal in transient factors that depressed inflation last year. (9) Rent inflation might have peaked, as the number of owner-occupied households has been increasing while renting ones decline.