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.”
KEY TAKEAWAYS
- The July Consumer Price index is expected to rise 3.3% year-over-year, up from the previous month’s annual rate of 3%.
- The Federal Reserve Open Market Committee will be paying attention to inflation numbers as they decide whether they have in fact tamed inflation.
- Consumers could see credit card, car loans and mortgage rates soften if the headline and core inflation data come in below expectations, possibly allowing the Fed to pause rate hikes in September.
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
Article Source
- MarketWatch. “U.S. Economic Calendar.”
- Reuters. “Fed’s Goolsbee: ‘golden path’ includes a couple of rate hikes.”
- Bureau of Labor Statistics. “Consumer Price Index Summary.“
- Federal Reserve. “Welcoming Remarks by Governor Michelle W. Bowman At ‘Fed Listens: Community Listening Session hosted by the Federal Reserve Bank of Atlanta.”
- https://www.investopedia.com/cpi-data-preview-7570642
