The Federal Reserve sees no reason to revise its long-term plan for interest rate hikes even as softening inflation data raised questions on Wall Street. But now, central bank members need to justify their glass-half-full mentality.
The Federal Open Market Committee, the monetary policy arm of the U.S. central bank, recently raised interest rates by 0.25%, as analysts expected, and forecast a steady string of increases through to 2018.
Fed members also pegged recent softening in inflation data as transitory, though committed to monitoring developments closely. Fed Chair Janet Yellen said in a press conference that "one-off" price decreases were responsible for soft inflation.
"The Fed is worried about inflation tomorrow, not today," Dan North, chief economist at Euler Hermes North America, told TheStreet. "They may see [recent softening] as a little more entrenched than they would like but they're [also] seeing unemployment being very low and likely to continue to go lower. As a result it's prudent on their part to maintain the path of raising interest rates."
Core producer prices in May declined, while consumer prices rose at half their expected pace last month. Data on consumer price data have disappointed for three straight months.
Fed officials will get their chance to justify a hawkish stance in the coming week -- the economic calendar is filled with Fed speeches and comments.
On Monday, June 19, New York Fed President William Dudley will address the Business Roundtable Meeting in upstate New York, while Chicago Fed President will speak on the economy and monetary policy at the Money Marketeers of New York University in New York.