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Cailianshe News, July 23 (Editor: Xiaoxiang)In the Federal Reserve's monetary policy meeting statements over the past nearly three years, there is a habitual modifier that the Federal Reserve uses to describe inflation that has always appeared frequently - elevated.

For example, in its June statement, the Fed described it this way: "Inflation has eased somewhat over the past year but remains elevated."

So, when did the Federal Reserve start using the word "elevated" to describe inflation?The answer can actually be traced back to the interest rate meeting in September 2021.

At that time, the PCE price index, the Federal Reserve's favorite inflation indicator, exceeded 4% in May, June and July of that year - equivalent to twice the Federal Reserve's 2% inflation target. The Federal Reserve, which could no longer attribute the inflation problem to "temporary" reasons, finally admitted that US inflation was already "high."

And the facts eventually proved that the US inflation figures have since completely run away like a wild horse, completely out of the control of the Federal Reserve.

but,Some industry insiders have already predicted that at the Federal Reserve's monetary policy meeting at the end of this month, the Federal Reserve is likely to make a far-reaching change in wording: completely deleting or modifying the above-mentioned "elevated" expression used to describe inflation...

Once this happens, there is no doubt that it will be the strongest signal that the Federal Reserve plans to cut interest rates as early as September and begin its monetary easing cycle.

Currently, interest ratesfuturesMarket pricing already shows that traders are almost 100% sure that the Federal Reserve will cut interest rates in September.

Some industry insiders also said that once the Fed starts to downgrade the description of inflation to a milder rhetoric than "elevated", thenIt could also lead the Fed to revise another key sentence in its current policy statement - that it would be inappropriate to lower the target range for interest rates until there is greater confidence that inflation is moving sustainably toward 2%.

Why does the industry speculate that the above wording will change?

The reason why industry insiders speculated that the above wording might change is that, on the one hand, after the PCE price index fell below 3%, the Federal Reserve staff began to stop describing inflation as "elevated" in some documents since January; on the other hand, inflation is currently slowing more broadly throughout the US economy, making Federal Reserve officials more confident that the economic slowdown will continue.

Fed officials have also recently begun using phrases like “gradually approaching” to describe how far away a policy shift is and to hint at possible tipping points that could require the Fed to change its description of the economy and its policy response to it.

The U.S. PCE price index for June, which will be released this Friday, is also likely to become a trigger for the Federal Reserve to make a change in its wording.Atlanta Fed President Raphael Bostic said in late June that “I would be surprised if (PCE) was considered not high if it was half a percentage point above target,” and he also indirectly suggested that inflation of 2.5% or lower would be a benchmark - at least to consider changing the description of inflation.

Many economists believe that the June PCE data released on July 26 may fall within this threshold. Economists currently surveyed by the media generally expect the US PCE price index in June to fall from 2.6% in the previous month to 2.4%, and the core PCE price index will also fall from 2.6% in the previous month to 2.5%.

Richmond Fed President Barkin also pointed out in an interview last week that the opening words of the Fed's monetary policy statement, including descriptions of growth, the job market and inflation, are used by us to "judge the economy." With the new PCE data released before the meeting, "we will see what the number is and then make any appropriate adjustments."

Some industry insiders also believe that the Federal Reserve now has sufficient reasons to make relevant wording changes.

Neil Dutta, head of economic research at Renaissance Macro Research, said, "They (Fed officials) should be more proactive in acknowledging that inflation has cooled."In a recent analytical report, he pointed out that the inflation problem that once troubled Federal Reserve officials now seems to be moving in a direction they would like to see.

For example, the U.S. Bureau of Labor Statistics has developed a new housing inflation indicator that comparesCPIThe slower-moving measurement method used by the government captures housing inflation trends more quickly, and the indicator has shown a "meaningful deceleration" - rents fell throughout the second quarter. Dutta said housing rental inflation is slowing further.

Omair Sharif, head of Inflation Watch magazine, also pointed out that in the current context,Removing the description of inflation as “elevated” is not only reasonable but “could be a good way to signal at the July meeting that a first fall would come in September.”