Fed Focuses on Core Inflation Amid Commodity Price Surge

The Federal Reserve is closely monitoring inflation data as it considers whether to raise interest rates at its upcoming meeting. Despite high commodity prices, particularly in oil, diesel, and copper, the Fed is focused on core inflation, which strips out volatile commodity prices. The unemployment rate is currently at 4.1%, and nominal growth has been running between 6% and 8% lately.

Commodity prices have been rising due to various factors, including the Iran conflict, which has driven up oil prices. The Fed is particularly concerned about diesel prices, as they impact food prices by increasing transportation costs. Heating oil prices have also increased, reflecting the embedded energy costs in the economy.

Copper prices have reached an all-time high, further exacerbating supply chain issues and costs for businesses in the US. Despite these concerns, the 10-year yield is currently at 4.80%, indicating that rate hikes are already priced into the market. The Fed's decision to hike rates will be insurance against future inflation if it doesn't improve soon.