Fed Faces Close Call as Supercore Inflation Takes Center Stage

BNY strategists John Velis and David Tam are closely watching the US Federal Reserve's (Fed) upcoming meeting, which they expect to be a close call. The duo believes that elevated supercore inflation is a key argument for further tightening, but still favors a July hold.

The Fed has been monitoring core services ex shelter, which has been running above its pre-COVID pace since mid-2023. This has caught the attention of Chair Kevin Warsh's Inflation Frameworks Task Force, which will reassess measures like trimmed mean inflation and their policy implications.

Warsh has stated that the task force will examine 'the drivers of inflation, first principles, and weigh the full range of ideas for delivering price stability in a changing economy.' This includes considering alternative measures to headline PCE, such as trimmed mean inflation.