Governor Michelle Bowman said in a speech yesterday: that inflation “continues to be much too high”, “I expect that ongoing increases will be appropriate”, “the economic outlook and the outlook for inflation continue to be highly uncertain”, “my views on the future path of monetary policy will continue to be informed by the incoming data”, “we are still far from achieving price stability” and “while there are costs and risks to tightening monetary policy to lower inflation, I see the costs and risks of allowing inflation to persist as far greater”.

Importantly she also said “The longer high inflation persists, the more likely it is that households and businesses may come to expect higher inflation in the longer term. Should this be the case, the FOMC’s job of lowering inflation would be even more challenging.”

The FOMC’s approach of responding to the data is risky – as there is a material lag between economic forces building, then manifesting themselves in the data, and then that manifestation being recorded and reported in the data.

It creates the risk of a dramatic return to rate tightening – which the market seems to not be anticipating at the moment.