Even before it was revealed that US inflation had surged to 5.4% in June, concerns had been rising that the US Federal Reserve was complacent about the risks. Fed chair Jay Powell probably did little to mollify inflation hawks in a recent congressional hearing. But can the Fed really be accused of inaction?

To answer this question, it is worth revisiting June’s meeting of the US Federal Open Market Committee. This meeting was even more heavily anticipated than usual, with markets waiting with bated breath for revisions to forecasts for growth, inflation, unemployment and future policy rates. The US economy has, of course, leapt off the starting blocks this year and the recent revisions by the Fed acknowledged this unexpected strength. Growth in 2021 was revised higher to 7.0%; the US unemployment rate expected at the end of next year was cut marginally to 3.8%; and the forecast inflation profile out to end-2023 was nudged higher to 2.2%.