We think the September CPI print – while likely affected by statistical noise – offers evidence that inflationary pressures remain broadly manageable.

The Fed’s statement, projections and press conference support our view that the policy rate will continue to rise on a gradual trajectory.

A focus on backward-looking data could lead to an overtightening mistake.

U.S. core CPI inflation lagged expectations in August, breaking from the recent trend of generally upward surprises from various wage and price reports.

Federal Reserve Chairman Jerome Powell’s remarks at the annual Jackson Hole Symposium emphasized several important uncertainties about the structural aspects in the U.S. economy that greatly complicate the central bankers’ medium-term job of setting monetary policy.

The increase in inflation reinforces our view that the Fed will continue its gradual pace of interest rate hikes.

Overall, we believe the administration’s recent trade policies and proposals pose a negative risk to our U.S. economic outlook over the cyclical (six- to 12-month) horizon, while the longer-term impact is less certain.

The meeting minutes due in a few weeks will likely shed light on the Fed’s longer-term framework for implementing monetary policy.

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.