This subdued inflation forecast may be surprising to some of you. After all, as you look at the chart, you can see that PCE inflation has risen relatively rapidly over the past three months and is now 1.8 percent – very close to the FOMC’s target. But the chart also clearly shows that many large fluctuations in PCE inflation end up being purely transitory.
Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2 percent on a sustained basis.