The Fed stated "inflation to remain subdued for some time as resource slack dampens cost pressures.” Does this really mean “inflation could skyrocket at any moment, but right we are really lucky to have too much supply to meet demand"?
Its true that these comments aren't new from the Fed as seen from Jeff Pietsch's article comparing today to the August meeting. However it does seem that the Fed is banking on the fact that they are out of the woods for the short-term and can continue to follow their easing policy actions.
The big question, though, is not when prices will go up due to heightened demand, but whether the recent move in gold has proven that commodity prices are taking high inflation for granted and therefore will rise before fundamentals support the move.
The answer may lie in the moves of energy prices. Crude and natural gas prices have rallied as the dollar has fallen, but have tended to react more closely to fundamental releases than the metals. If we begin to see crude take off and surpass $75 a barrel, even as inventories remain high, this may indicate that "resource slack" notwithstanding, high commodity prices and near term inflation will be arriving a lot quicker than the Fed would like.
