Inflation expectations are little changed as Fed holds rates steady

One of the key questions leading into this week’s meeting of the Federal Open Market Committee: “How will the Fed characterize inflation in its post-meeting statement?”

The thinking, among Fed watchers, was that a shift in language about inflation — in the form of a statement that inflation was low and perhaps going lower — would signal no increase in the target federal funds rate would occur at the next meeting.

The statement on July 26, however, made clear “longer-term inflation expectations are little changed, on balance.” Indeed, the FOMC stated: “Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term.”

That could mean the next increase in the target federal funds rate — currently holding at 1 percent to 1.25 percent — could happen as early as September.