The Federal Reserve held rates steady, but the markets will not like the references to inflation here:

Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

The statement appears to be unanimous. Data revisions announced today on PCE inflation -- the Fed's preferred measure -- moved up the rate beyond the assumed target of 2%. The WSJ Economics blog points to tomorrow's statement on May PCE as key.

The comment on "high level of resource utilization" appears to be the staff pushing back on the board, at least if you believe this story.

The Dow was up 50 when the news broke; I'd bet that won't last.

UPDATE: William Polley calls it nothing new and shouldn't move the market (around 2:24 when the Dow had rallied back to about +25.) Close: -5. He notes, I think correctly, that the bond market is leading the stock market here. (See also James Picerno's note on the yield on indexed Treasuries relative to GDP.) I'll agree with him that there's no sign yet, but if tomorrow's PCE numbers are bad, it will be icky. Or ishy, if you're from central MN.

Labels: economics