Davies notes that Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, remains laser focused on the output gap and unemployment in the U.S. and relies on them to provide a buffer of comfort versus inflation. Dudley is not worried about other signals of inflationary pressures, like rising commodity prices driven by demand, as long as inflation expectations remain contained. We have shown numerous examples in these pages of how these expectations are actually tilting toward inflation. It remains unclear when the Federal Reserve will also notice.

For more details see “The Fed doves have not caved in.”

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