It´s all about the labor market. Until March of this year the unemployment interest rate trigger was 6.5% (as long as inflation was not higher than 2.25%. With unemployment getting “uncomfortably” close to the trigger point but with inflation far below target, the FOMC ditched the 6.5% specification from its communications.
Unemployment has continued to drop and is now at 5.8%, closing in on the conventional 5.5% definition of “full employment” (i.e. no “slack”). Unfortunately for Janet(Phillips Curve)Yellen, inflation languishes way below target (unless their actual target is the 1%-2% interval as some posit).
What the Fed does not “capice” is that monetary policy is already tight, although not as tight as in the Euro Zone.
The charts illustrate.
See that inflation only touched the 2% target on two occasions in the last six years!
And for many years there has been no inkling of wage pressure despite the fall in unemployment.
Furthemore, all medium and longer term inflation expectations, be it of the survey, market or tweeked from data variety , show expectations are subdued.