Expecting rate hikes and analyzing service sector inflation (with Scarlet)

5/8/2026 11:20:03 PM	medium term cautious up	21 days later	+1.47%	+0.74%
1/9/2026 9:18:34 PM	medium term cautious down	21 days later	+2.10%	-1.05%
11/14/2025 9:03:18 PM	short term up	7 days later	-2.30%	-2.30%

Diane Swonk

I'm not surprised. We saw a major move in the minutes to the last meeting where a lot of people were moving towards that hawkish stance. Fed governors who usually hold their cards closer to the vest are talking about how price stability is more important now than employment.

That's exactly what you saw with that last sentence in the statement. The focus is on price stability given the stability we've seen in the unemployment rate.

Diane Swonk

The concern goes beyond energy and tariff shocks. It's in that core super services component of inflation that we're seeing get sticky and hot and accelerate.

Diane Swonk

The Fed is worried about the muscle memory of inflation. We're five years in and inflation is still a problem. They're putting their foot down now that the labor market is not in a precarious situation.

Manufacturers are front-running future price hikes. That kind of hoarding behavior reinforces its own inflation cycle.

Diane Swonk

Service sector inflation is being buoyed by high-end consumers spending on first class tickets and high-end hotels, while lower and middle income strata see their wages eroded.

The Fed has to manage to the economic aggregates when the devil is in the details underneath those aggregates.

Diane Swonk

I still expect two rate hikes by year end. The neutral rate is likely higher than they thought, and on top of that we may need another hike.

There's a lot of underlying growth and capex in the economy and we don't know whether the Middle East will be worked out.

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