The FOMC meets this week and is expected to confirm the change in guidance announced last month.

The rebound in economic activity is moving at a better pace than the output of goods. As a result, inflation is higher than at any time in the past ten years. The CPI increased by 0.4% in August after rising by 0.6% in July. The rise in end prices was a function of a lack of supply of many products, as inventories were depleted in the second quarter. This two-month surge has driven year-over-year inflation up to 1.3% from below 1% through May. This is still below the prior Fed target of 2%. This increase was not driven by energy prices, as has been the case in the past. The core rate, which excludes food and energy prices, is up 1.7% YOY. Normally this rise in inflation would cause market interest rates to rise. That is not the case this time.