US headline inflation rose to 1.9% in March. With core inflation at 2.0% and the economy near full employment, the Federal Reserve is right on target with its policy goals. Given that inflationary pressures remain limited for now and wage growth is decent, but no more than that, the US central bank can take a wait-and-see approach.
GDP growth is expected to be close to 2% this year, a level at which the Fed can afford not to raise rates again before the year is out. However, as the FOMC Meeting Minutes showed yesterday, we should not rule of the possibility of more monetary tightening further down the road as Fed members struggle to gauge the actual strength of the US economy.