The rapid pace of inflation slowed in July for the first time in months, but the slowdown in price increases is unlikely to be enough to Federal Reserve to ease off the brakes as he tries to cool the US economy and rein in rising costs.
The Ministry of Labor announced on Wednesday that the consumer price index, a broad measure of the price of everyday goods, including gas, groceries and rents, rose 8.5% in July from a year ago, below the rise in 9.1% year-on-year recorded in June. Prices remained unchanged during the month-long period from June.
The so-called core measure – which excludes food and energy – rose 0.2% in July and 5.9% from a year earlier, a marked slowdown from June.
While the moderation is likely a welcome respite for the Fed as it tries to get inflation under control, consumer prices remain at painful decades-old levels. On top of that, the Labor Department reported last week that employers unexpectedly added 528,000 jobs in July — nearly double the economists estimate — suggesting the economy is still in a turmoil.
“These data will not change the monetary policy trajectory outside the Federal Reserve,” said Joe Brusuelas, RSM’s chief economist. “We expect a 75 basis point hike at the September meeting due to the boiling labor market and widening inflation in the housing sector which is now a big part of the policy challenge.”
Fed policymakers have signaled in recent days that they remain poised to approve another mega interest rate hike – either 50 or 75 basis points – when they meet near the end of September. There will be another round of inflation and employment 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 moves differently,” San Francisco Fed President Mary Daly told Bloomberg TV on Thursday. She added that while the July numbers are “meaningful…they are not victory”.
“It really behooves us to stay dependent on the data and not call it out,” she added.
Traders are split on how big the Fed could get in September, with 55% pricing in a chance of a 50bp hike and 45% putting their money on a 75bp hike in the fall. , according to the CME Group’s FedWatch tool, which tracks the exchanges.
Policymakers endorsed the second consecutive 75 basis point hike in July and hinted in their post-meeting statement that further increases are likely in the coming months as they remain “strongly committed to bringing inflation back to target.” of 2%”.
President Jerome Powell said in his post-meeting press conference that another 75 basis point hike may be appropriate going forward, but ultimately depends on upcoming economic data.
“We’re going to be watching the data and the evolving outlook very carefully and taking everything into account and making a decision in September on what to do,” Powell said. “I’m not really going to give specific guidance on what that might be. But I did mention that we might do another unusually large rate increase, but that’s not a decision we’ve made at all. .”