Fed seen pausing after tame CPI data, but mission not over

economictimes.indiatimes.com:

Federal Reserve policymakers are increasingly likely to leave interest rates unchanged at their next meeting after fresh evidence of easing inflation, but they’ll be careful to strike a tone that their job isn’t done yet. A report on Thursday showed the core consumer price index, which excludes often-volatile food and energy costs, rose 0.2% for a second month. That marked the smallest back-to-back gains in more than two years, adding to a steady wave of disinflation in recent months.

Officials have been divided as to how to proceed from here. One faction of the Fed’s policy-setting committee argue that the past year-and-a-half of interest-rate hikes has done its job, while another group contends that pausing too soon could risk inflation reaccelerating. It’s been a balancing act to appease the two.

In June, the Fed held the federal funds rate steady for the first time since it started hiking rates in March 2022, but estimated two more increases this year. The first of those was accomplished last month, and it’s unclear whether there will be a second. Earlier this week, Fed Governor Michelle Bowman reiterated her view that the US central bank may need to raise rates further in order to fully restore price stability, while Philadelphia Fed President Patrick Harker said that officials may be able to hold steady.

Cooling inflation, along with moderating growth in job gains and wages, has been fueling hopes that the Fed can successfully tame inflation without triggering a big jump in unemployment. Several economists, including those at JPMorgan Chase & Co. and Bank of America Corp., have scrapped their recession calls in recent weeks.