Fed policymakers remain wary about inflation, focus shifts to FOMC Minutes

• Fed policymakers' comments on policy outlook will be scrutinized by investors this week.
• Markets try to figure out whether the Fed will hold policy steady in September.
• Fed rate outlook could influence the US Dollar's performance against its major rivals.

Federal Reserve (Fed) policymakers are scheduled to deliver speeches throughout this week as investors reassess the interest rate outlook following the April Consumer Price Index (CPI) data. According to the CME FedWatch Tool, the probability of a no change in the Fed's policy rate in September holds around 40%.

The US Bureau of Labor Statistics reported on May 15 that the core Consumer Price Index (CPI) rose 3.6% on a yearly basis in April. This reading followed the 3.8% increase recorded in March and came in line with the market expectation. On a monthly basis, the CPI and the core CPI both rose 0.3% after rising 0.4% in March. The US Dollar (USD) came under bearish pressure as market participants assessed the inflation data and the USD Index fell to its lowest level in over a month, losing over 0.7% on a weekly basis.

Since the release of the April inflation report, however, Fed policymakers adopted a cautious language and caused investors to doubt the probability of a rate cut in September. In the American session on Wednesday, the Fed will release the minutes of the April 30-May 1 policy meeting.

Fed Minutes Preview: Markets to focus on comments regarding the inflation outlook.

Fed officials' recent comments on policy and inflation

San Francisco Fed President Mary Daly noted on Monday that, while she expects shelter inflation to slowly improve, she said that she doesn't expect progress to be quick. Fed's Daly also noted that she is not confident that inflation is sustainably coming down to the Fed's 2% inflation target.

Fed Vice Chair for Supervision Michael Barr said that the Fed is in a good position to hold the policy steady and watch the economy, per Reuters. Meanwhile, Fed Vice Chair of the Board of Governors Phillip Jefferson acknowledged that April's better inflation reading was encouraging and added that it was too early to tell if the recent slowdown in disinflationary process will be long-lasting.

Last week, Fed Board of Governors member Michelle Bowman said that progress on inflation may not be as consistent as many hoped. Cleveland Fed President Mester emphasized that maintaining the current levels of Fed policy will aid in returning still-elevated inflation to the 2% target. Richmond Fed President Thomas Barkin told CNBC last Thursday that the latest Consumer Price Index (CPI) data showed that inflation was not where the Fed is trying to get. Finally, New York Fed President Williams argued that there was no need for a rate cut in the near term.

Atlanta Fed President Raphael Bostic said on Tuesday that the Fed has to be cautious about the first rate move, adding that it may need to be later in order to not stoke pent-up exuberance for investment and other spending. Meanwhile, Fed Governor Christopher Waller noted that he needs to see several more months of good inflation data before being comfortable to support an easing in the policy.

Fed's Bostic: Fed has to be cautious about first rate move.

Fed's Waller: Several more months of good inflation data needed before supporting easing in policy.

Fed Governor Waller added further comments on Tuesday, cautioning that the Fed's data-dependent approach may not see the need for rate cuts until the end of the year. However, Fed's Waller pointed out that if the Fed were to start a cutting cycle, a single rate cut doesn't make a lot of sense.