Staff Lowers Inflation Forecasts As "Supply-Demand Imbalances" Seen Easing

The July FOMC minutes show staff projections for core PCE were lowered vs June's minutes.

• The core projections per July's minutes: 4.0% 2022; 2.6% in 2023 / 2.0% in 2024.
• June's minutes: 4.1% 2022 / 2.6% in 2023 / 2.2% 2024.
• Headline PCE is seen dropping to 1.9% in 2024 (below June's 2.0% expectation), both on core inflation falling, and "a projected rapid deceleration in consumer food and energy prices in coming quarters".
• July's minutes: "the projected deceleration in core prices was attributable to the anticipated resolution of supply–demand imbalances, a labor market that was expected to become less tight over the projection period, and a projected decline in import price inflation."
• July's minutes on the changes from June: "The projection for U.S. economic activity prepared by the staff for the July FOMC meeting was noticeably weaker than the June forecast, reflecting the economy’s reduced momentum and current and prospective financial conditions that were expected to provide less support to aggregate demand growth. As a result, while the projected level of real GDP remained above potential this year, the gap was expected to have closed by the second half of 2023. Similarly, the unemployment rate was projected to start rising in the second half of 2022 and to reach the staff’s estimate of its natural rate at the end of next year."