Still, it remains one of the principal “tea-leaves” in predicting the Fed’s next action. After all, the very low level of unemployment currently means rampant inflation is imminent, and interest rates must be increased now, right? The problem is that the Fed’s tools (CPI and PCE) are backward looking.
Alan Greenspan’s favorite inflation measure was the FIG — Future Inflation Gauge. It is forward-looking. For the last year, FIG has been moderating, as shown in this graph:
Of course, there are other reasons to raise interest rates. For example, it is important to have some “dry powder” or room to decrease rates during the next, always-inevitable recession. I expect one more increase this year but no more.