The Fed does seem inclined to continue raising rates modestly this year in response to the country's steadily improving economy and to keep inflationary pressures under control.
The US' economic momentum, tight labour market, buoyant consumer spending, tax cuts and tax on imports (steel and aluminium) and the recent surge in oil prices all point to higher inflation over the coming months, the question is how fast.
The rise in the annual inflation measures reported by the Commerce Department on Monday was anticipated by economists and Fed officials and is not expected to alter the U.S. central bank's gradual pace of interest rate increases. Core inflation has now reached the median of Fed officials' projections from their March 20-21 meeting, which saw core inflation at 1.9% by the fourth quarter.
Personal incomes advanced a moderate 0.3 percent in March, matching the February gain, but they have been growing strongly. That was the fastest pace since a similar 12-month gain of 1.9 percent in February 2017 and prompted some analysts to predict that the central bank will ultimately decide to raise rates four times this year to make sure inflation does not get out of hand. Based on that measure, the economy slowed in the first quarter. This measure had been consistently moving on up, moving on up since it bottomed at 1.3% in August a year ago. The saving rate slipped to 3.1 per cent from 3.3 per cent in February. Some Fed officials pointed to one-off or transitory factors, such as a sharp decline in the price of cellular-service plans last spring, which they expected would be temporary.
"I'm actually very comfortable going above 2 percent by some amount, 2.2 percent, 2.3 percent", Atlanta Fed President Raphael Bostic told Bloomberg Television on April 5.More news: IPhone X blamed for Apple's slow growth in smartphone sales
One more time, this "by itself, would not justify a change in the projected path for the federal funds rate".
They are scheduled to meet for two days starting on Tuesday and are expected to leave interest rates unchanged in the current range of 1.50-1.75 percent.
Excluding the volatile food and energy sectors, the price index jumped 1.9 percent in the 12 months through March.
Currently, interest rates futures imply traders have priced in a 45 percent chance the USA central bank will raise short-term borrowing costs three more times in 2018 with the next hike at its June 12-13 meeting, CME Group's FedWatch program showed.
Personal incomes rose 0.3 percent in March, while wages and salaries advanced 0.2 percent - the smallest gain since October.