But there was little in Wednesday’s minutes to indicate Bostic had plenty of company. On the contrary, the minutes showed a committee largely concerned with inflation above all else. As Bloomberg Intelligence’s natural language processing model shows, Fed minutes have been about as hawkish as they have ever been this cycle. The indicator tends to rise and fall based on bond yields.

The word “pause” or any other synonym was conspicuously absent from the release. The closest thing was the suggestion – which the market has heard before – that policymakers would assess the way forward once they return interest rates to what they see as a more neutral framework, which neither stimulates nor hinders economic activity:

Many participants felt that accelerating the removal of political accommodation would leave the Committee well placed later this year to assess the effects of policy tightening and the extent to which economic developments warranted policy adjustments.

It’s the old line about being “data dependent”. One can quibble about the wisdom of relying on data in an environment like this — knowing that data is lagging and the Fed is already months behind in fighting inflation — but it’s worth it. to take the committee at its word. If policymakers follow the data, it’s hard to imagine they’ll like what they see in inflation by September.

There is no doubt that the US economy is facing headwinds, and that is when the central bank is raising rates to bring demand in line with supply. The overly optimistic corporate earnings outlook probably needs to be downgraded. But the worst inflation in 40 years is the committee’s main concern. He’s not coming to the market’s rescue anytime soon, and he’ll be relieved — not dismayed — at any sign that consumer demand is moderating for goods and services.

As Fed Chairman Jerome Powell said in an interview with The Wall Street Journal’s Nick Timiraos last week, policymakers need to see “clear and compelling evidence that inflationary pressures are coming down and inflation is coming down.” “. He also told Timiraos that he was mostly concerned about the big picture and basically warned investors not to go too deep in the weeds looking for excuses to get bullish again:

Everyone reads inflation reports very carefully and looks for details that look positive and that sort of thing. But truth be told, now is not the time for extremely nuanced readings of inflation. We need to see inflation come down convincingly. This is what we need to see. And until we see that, we’ll carry on. We’re not going to assume we’ve succeeded until we see it.

Powell focuses on the headline numbers, and those numbers show that inflation is not falling below the Fed’s 2% average target in a “clear and convincing” way. In fact, it barely fell, according to the Cleveland Fed’s daily inflation through Wednesday. Some of this can be attributed to gas prices, but perhaps it’s best not to be so specific.

The markets and the Fed missed the forest for the trees last year when they called inflation “transient.” Focusing on idiosyncratic factors such as used car prices has contributed to policymakers underestimating the problem. Now, even if you think the worst is over, policymakers won’t be content with inflation going from terrible to just bad, and neither should they. If allowed to fester there, inflation will reenter the public mindset and the country will face heightened risks of future spikes.

The same goes for the subtle signs of faltering growth. Investors shouldn’t be caught up in every twist; the Fed is not going to change course just because a few retailers cut their outlook. Overall, the labor market remains historically tight, consumption remains too strong and a few stock market sell-offs will not deter the Fed from raising interest rates until inflation is brought under control. That’s probably a lot further than most investors appreciate.

More other writers at Bloomberg Opinion:

• Has the inflationary wave broken? Expect More: John Authers

• Labor market heading for a soft landing: Conor Sen

• ECB removes strategic ambiguity on rate hikes: Marcus Ashworth

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Jonathan Levin has worked as a Bloomberg reporter in Latin America and the United States, covering finance, markets, and mergers and acquisitions. Most recently, he served as the company’s Miami office manager. He holds the CFA charter.

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