TD Securities strategists Oscar Munoz and Eli Nir argue that new inflation tools championed by incoming Fed Chair Kevin Warsh, including trimmed mean measures and a potential big-data price project, will not materially alter the policy outlook. They stress that Federal Reserve (Fed) officials already monitor a broad set of indicators and that clear evidence of underlying inflation normalization is still required before rate cuts, which they expect could begin around the September FOMC meeting.

Fed waits for clearer inflation signal

"In our view, the addition of one or two new inflation measures is unlikely to move the needle on rate cuts, as ample evidence of underlying inflation normalization will still be necessary."

"However, building a consensus for easing policy at the FOMC will take more than a new and shiny inflation measure."

"We continue to judge the bar as being high for easing policy in the near term even though we are amenable to the idea that a couple of likely temporary factors are keeping inflation elevated."

"However, the Fed's path of least resistance is to remain in a holding pattern."

"We remain of the view that we will find enough evidence by the September FOMC meeting, allowing the Fed to resume its gradual path toward neutral."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)