The Federal Reserve is sticking to its story. The factors that drove annual core inflation up to a near-30-year high of 3.8% in May are largely “transitory,” it said Wednesday.

Chairman Jerome Powell reiterated the point several times in his press conference: “Our expectation is these high inflation readings…will start to abate.” The used-car price surge will reverse as that for lumber already did, he said. Fed officials expect inflation to slow from 3.4% at the end of this year to 2.1% by the end of next year and 2.2% by the end of 2023. The last two figures are each up just a tenth of a percentage point from their March forecast.

But beneath the surface, some anxiety is creeping in. In March, just five of 18 Federal Open Market Committee participants thought risks to inflation were weighted to the upside. In June, that had risen to 13. In other words, a solid majority of Fed officials think inflation is more likely to turn out higher rather than lower than projected.

The used-car price surge is expected by the Federal Reserve to reverse.

The used-car price surge is expected by the Federal Reserve to reverse.

Photo: Jim Watson/Agence France-Presse/Getty Images

Those shifting risks made their way into officials’ views on rates. The median projection is now for a half-percentage-point rate increase by the end of 2023, compared with the March expectation of no change. Why are officials in a greater hurry to raise rates now than in March given how little their forecasts changed? Mr. Powell said it was a matter of confidence. The Fed had laid out two conditions for eventually raising interest rates: inflation sustainably at 2% and expected to run moderately above that, and full employment. Many officials “are more comfortable that the economic conditions in [their] forward guidance will be met sooner than previously anticipated,” he said. “And that would be a welcome development.”

That said, it appears their confidence in hitting the inflation goal has gone up more than their confidence in hitting the full-employment goal. In fact, taken at face value, the inflation goal may have already been hit. Inflation is now above 2%, and expected to be moderately above that for the next few years.

Federal Reserve Chairman Jerome Powell described the outlook for inflation in the U.S. economy and said there are signs that prices that have moved up quickly should cease rising and retreat. Credit: Al Drago/Associated Press The Wall Street Journal Interactive Edition

The problem is that this didn’t happen as anticipated under a new policy framework unveiled last year. Because inflation had been running below its 2% target, the Fed wanted inflation to run a bit above 2% so that over time it would average 2%. To achieve this it would let the economy overheat, pushing unemployment down to pre-pandemic levels below 4%. That would nudge inflation a bit above 2% for a while, a process it assumed would take several years.

Instead, inflation has shot up as a result of the collision of elevated demand and constricted supply, serving to hold back job growth. This sort of inflation is an idiosyncratic supply shock of the sort that central banks have long wrestled with, Mr. Powell said.

As long as this increase really is transitory, the Fed should be fine. And on that, the Fed has an important ally: the bond market, which thinks inflation is going to fall back. But if these supply shocks push up public expectations of inflation, which tend to be self-fulfilling, the Fed has a problem. It could no longer stick to its plan of waiting for full employment to return before tightening monetary policy. While Mr. Powell said the rise in expectations hadn’t yet reached worrisome levels, “We don’t in any way dismiss the chance.” And in that event, he said, “We wouldn’t hesitate to use our tools to address that. Price stability is half our mandate.”

Write to Greg Ip at greg.ip@wsj.com