The Fed’s dilemma: overtightening versus overheating.

We believe 2018 may be the year that challenges preconceptions about the equity/inflation correlation, and the market’s reaction to April’s soft inflation readings seems to bear this out.

We expect the recent rise in oil prices to be a modest headwind to U.S. economic activity while supporting inflation.

The May statement emphasized the symmetry of the Fed’s 2% inflation target and indicated that the Fed’s baseline outlook remains for two or three additional interest rate hikes in 2018.

Firming healthcare inflation should support the aggregate core inflation measure despite the more muted trends in core goods.

The March minutes affirmed our view that the bar is relatively high for policymakers to change the current plan for two or three more hikes in 2018.

We expect the direct economic impact of current trade actions to be relatively minor (and dwarfed by the pro-growth measures passed to date), but further escalation of trade tensions could strengthen the economic headwinds.

It’s important to view the FOMC’s forecast update within the broader context of a still-low neutral policy rate.

We believe the trade actions with the most significant potential economic and market impact have yet to unfold.

February’s slower core inflation was in line with expectations, following January’s bump in hospital reimbursement rates and post-holiday normalization in retail goods prices.

Core CPI inflation appears to have bottomed in August, and as expected, we’re seeing some acceleration in 2018.

The U.S. is starting to look more like an economy that is in the later stages of its business cycle.

The October print boosted the year-over-year rate and lends support to our forecast for core CPI inflation to accelerate back to 2% in 2018.

Core inflation continued to run softer than expected in September, a trend that could make the Federal Reserve more cautious about hiking interest rates in December.

The strengthening in CPI (particularly in the rent categories) is likely good news to the Fed – and makes a return to 2% CPI inflation in 2018 look more probable.

Another underwhelming rise in the U.S. core Consumer Price Index (CPI) reported on Friday increases the chances that Federal Reserve policymakers use the September meeting to signal they plan to abstain from additional interest rate hikes until next year.

June’s disappointing result raises questions about the likelihood of another Federal Reserve interest rate hike this year.

May’s inflation weakness was broad-based across goods and services categories and will be more difficult for Fed officials to dismiss as a “one-off.”