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The brisk pace of inflation eased in July for the first time in months, but the slowdown in rising prices likely isn’t enough for the Federal Reserve to take its foot off the brakes as it tries to cool the U.S. economy and tame rising costs .
The Labor Department said on Wednesday that the consumer price index, a broad measure of the prices of everyday goods including gasoline, groceries and rent, rose 8.5 percent in July from a year earlier, below a jump of 9.1 % on an annual basis, registered in June. Prices were unchanged in the one-month period from June.
The so-called core measure – which strips out food and energy – rose 0.2% in July and 5.9% from a year earlier, a significant slowdown from June.
While moderation is likely a welcome respite for the Fed as it tries to rein in inflation, consumer prices still remain at painfully high levels for several decades. Also, the Labor Department reported last week that employers unexpectedly added 528,000 jobs in July — nearly double what economists had forecast — suggesting the economy is still red hot.
HOW THE FEDERAL RESERVE DROPPED THE METAL FROM RISING INFLATION
A customer shops at a supermarket in Millbrae, California, the United States, August 10, 2022. ((Photo by Li Jianguo/Xinhua via Getty Images) / Getty Images)
“These data will not change the path of monetary policy outside the Federal Reserve,” said Joe Brusuelas, chief economist at RSM. “We expect a 75 basis point hike at the September meeting because of the hot labor market and the expansion of housing inflation, which is now a big part of the policy challenge.”
Fed policymakers have signaled in recent days that they remain willing to approve another mega-sized rate hike — 50 or 75 basis points — when they meet in late September. There will be another round of inflation and jobs data ahead of the September 20-21 meeting.
“I still think 50 basis points is the case, but I’m open to 75 if the data plays out differently,” San Francisco Federal Reserve President Mary Daley told Bloomberg TV on Thursday. She added that while the July numbers were “significant … they are not a victory.”
“We really have to stay data-driven and not make calls,” she added.
Traders are split on how big the Fed could go in September, with 55% pricing in a chance of a 50-basis-point hike and 45% putting their money on a 75-basis-point hike in the fall, according to CME Group’s FedWatch tool, which tracks trade.
Federal Reserve Chairman Jerome Powell arrives to speak at a press conference Tuesday, March 3, 2020, to discuss an announcement from the Federal Open Market Committee in Washington. ((AP Photo/Jacquelyn Martin) / AP Newsroom)
Policymakers approved a second straight hike of 75 basis points in July and hinted in their post-meeting statement that further hikes were likely in coming months as they remained “strongly committed to returning inflation to its 2% target.”
chairman Jerome Powell said during his post-meeting news conference that another 75 basis point increase may be appropriate in the future, but that it ultimately depends on the economic data ahead.
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“We will watch the data and the developing outlook very carefully and take everything into account and make a decision in September about what to do,” Powell said. “I’m not really going to give any specific guidance on what that might be. But I mentioned that we might do another unusually large rate increase, but that’s not a decision we’ve made at all.”
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