Yellen to speak on 26th September (Inflation, Uncertainty, and Monetary Policy) - Nomura

Recent developments in inflation remain a key focus for the FOMC. 

Key Quotes:

"Chair Yellen will deliver a speech on the topic of “Inflation, Uncertainty, and Monetary Policy” (26 September, 12:45 EDT). We expect this speech will partly reflect her comments on inflation at the post-FOMC meeting press conference on Wednesday. 

Specifically, she noted that, in contrast to earlier periods of post-crisis weak inflation, there is not a “sufficient set of factors that explain this year why inflation has been this low”. In other words, weak inflation this year remains a mystery. By contrast, in an interview on Friday, Federal Reserve Bank of San Francisco President John Williams stated that he does not find the recent weakness in inflation “baffling”, and he expects inflation to move up to 2% over the next two years. 

Despite the recent weakness in inflation, a large majority of FOMC participants expect one additional hike this year. Indeed, after this week’s meeting, the number of participants expecting no further hikes in 2017 was unchanged from the June meeting. We take this to reflect the Committee’s overall confidence that inflation will gradually move up to its symmetric 2% target over the medium term. 

While we also expect Committee members to closely monitor inflation developments between now and the December meeting, short-term noise arising from the recent hurricanes could mask the underlying trend of inflation over the coming months. Although we expect core PCE inflation to average 0.16%/month over the next several months, if inflation comes in significantly weaker (despite anticipation that the impact from the hurricanes will exert upward pressure in the short run), then sentiment on a December hike could shift."