Is Inflation Tamed? Thursday’s Inflation Numbers Will Give the Fed New Clues

If economists’ expectations are to be believed, the Federal Reserve may be inclined to keep pushing rates higher at the September meeting, as they pursue the “Golden Path.”

Consumers have felt the pinch of inflation driven by higher prices at the grocery store, for medical care, new and used cars, and rent, among other expenses, but June CPI data came in lower than expected, raising hopes the Fed has finally tamed inflation.

However, Thursday’s report could persuade Fed officials to continue hikes if it follows economists’ expectations. The average forecast is for the CPI to come in at 3.3% year-over-year, higher than last month’s 3%.1

Fed officials are attempting to strike a delicate balance—raise rates until inflation is under control without tipping the economy into a recession. The right combination of rate hikes and pauses that would get the economy to the Fed’s target 2% inflation level is what Chicago Federal Reserve Bank president Austan Goolsbee called the “Golden Path” last month.2

While some prices have come down in the last year, particular categories continue to rise, especially in the service sector, where medical care prices have risen every month in 2023. Last month’s report showed rents have risen 8.3% on a yearly basis and transportation costs are up 8.2% in the same time period.3

On the goods side, used vehicle prices have started to tick down, falling 5.2% since last June, while new car prices have risen in four of the last seven months and are up 4.1% annually.

Fed officials are not ruling out more hikes.

“I supported raising the federal funds rate at our July meeting, and I expect that additional increases will likely be needed to lower inflation to the FOMC’s goal,” said Fed Governor Michelle Bowman on Monday.4