Fed Seen Pausing in September After Tame Core-Inflation Report

Federal Reserve policymakers are increasingly likely to leave interest rates unchanged at their next meeting in September after fresh data showed further signs of cooling inflation.

The core consumer price index, which excludes often-volatile food and energy costs, rose 0.2% for a second month, Bureau of Labor Statistics data showed Thursday. That marked the smallest back-to-back gains in more than two years. The overall CPI also increased 0.2% in July and 3.2% from a year earlier.

“The Fed’s got to be encouraged by two lower numbers in a row,” said Stephen Stanley, chief US economist at Santander US Capital Markets. “I think their intention is to skip in September. This certainly isn’t the last word.”

Inflation's Downward Path

The Fed in July increased the federal funds rate to a range of 5.25% to 5.5%, the highest level in 22 years. The median estimate of Fed officials’ most recent quarterly projections, published in June, showed two more rate increases this year, the first of which was accomplished with last month’s hike.

Fed officials have given differing opinions on the need for more hikes, with Governor Michelle Bowman reiterating Monday her view that the US central bank may need to raise rates further in order to fully restore price stability, while Philadelphia President Patrick Harker said Tuesday the US central bank may be able to hold steady from here on out.