The Federal Reserve has confirmed that it will not stray from its proposed plan to continue with rate hike increases, even as the threat of a recession grows, in comments made following the release of the latest Consumer Price Index (CPI).
The latest data shows that inflation has somewhat cooled, with July prices remaining the same as those reported in June. Despite the lack of increases the year-on-year
, The Federal Reserve says this is just one data point and part of a much larger process, which will see it follow through on plans to usher in yet more interest rate hikes to further cool the economy.
The CPI data showed that the price of fuel (gasoline) fell 7.7% in July, giving some respite to motorists at the pump, who have dealt with record prices ever since the war in Ukraine started back in February.
Capital Economics’ chief U.S economist, Paul Ashworth said further price dips could follow. “This is not yet the meaningful decline in inflation the Fed is looking for,” he warned. “But it’s a start and we expect to see broader signs of easing price pressures over the next few months.”
While there were no price increases from June to July, the year-on-year chart showed an 8.5% increase – this after a 9.1% year-on-year increase the previous month.
Speaking after the data was released, Neel Kashkari, President of the Minneapolis Federal Reserve said that it was premature to suggest that rate hikes could be paused. He said the Feds were “far, far away from declaring victory” indicating that all planned rate hikes, including the large hike on the cards for September, would continue as planned.
Mary Daly, the San Francisco President indicated that she was in favour of the 0.75% increase scheduled for September, while Charles Evans, who is the Chicago Federal Reserve President noted that inflation levels remained “unacceptably” high.
Analysts too believe that the pace of rate hikes will not falter, with Rubeela Farooqi of High Frequency Economics stating, “Overall, prices remain uncomfortably high. Coupled with strength in job growth and wages, the data support the case for another aggressive rate hike in September.”
This is a significant turn of events, given the US economy has now contracted for two quarters in a row to meet the technical definition of recession. Additional pressure from the Federal Reserve in the form of large rate increases could be enough for the economy to cool further.
While the job market is considered to be very strong, the latest weekly jobless claims data shows that the number of workers registering for unemployment has ticked up yet again. The 14,000 new claims was higher than expected and takes the total figure to 262,000 for the week to Saturday. The four-week moving average also grew, as too did the number of continuing jobless claims recorded.
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