Westpac on US CPI - FJElite

It remains the case that the CPI ex food, energy and shelter is below target at 1.8% on a six-month annualised basis, signalling that the current stance of policy is proving effective in bringing inflation to heal across discretionary items. Regardless, the FOMC will make the case that the headline measures have not made enough progress recently and there is therefore need to tighten policy further. A 25bp hike is expected this week, and another is likely at the next meeting in October. In our view, these decisions will be as much about restoring confidence in the bond market and managing medium-term inflation expectations as restricting current inflation. But the FOMC will justify the decision with the near-term inflation narrative.