"Fed Whisperer": A tiny shift in Friday's CPI could determine the Fed's next move.
Nick Timiraos, chief economics correspondent for *The Wall Street Journal*, recently wrote that throughout the summer, Federal Reserve officials have debated whether current interest rates are high enough to bring inflation back down to the 2% target. While price data in the spring was stronger than expected, it cooled in June and July; Friday's data for August will further test whether this improvement represents a genuine trend reversal or merely another brief respite following five consecutive years of inflation exceeding the target.
Economists project that core CPI—excluding food and energy prices—rose 0.2% month-over-month in August. Yet, a mere 0.1 percentage point difference could be all that separates a scenario justifying a continued wait-and-see approach from one compelling the Fed to raise rates.
At its July meeting, the Fed held interest rates steady, though three officials voted in favor of a hike. Since then, several officials have indicated they might join the camp favoring rate increases if inflation does not continue to improve.
Fed Chair Kevin Warsh’s remarks at last month’s Jackson Hole symposium signaled a distinct shift toward the pro-hike camp. He stated that he saw little evidence of borrowing conditions restraining the economy and that the improved inflation data seen since the summer were insufficient to convince him that the underlying trend was improving.
Warsh did not specify exactly what kind of data would satisfy him.
Vincent Reinhart, a former senior Fed economist, noted that this effectively turns the market situation into a test for the new Chair: investors have priced in a rate-hike scenario that Warsh never explicitly promised, leaving him to either deliver on it or explain why he is not doing so.
Nick Timiraos, chief economics correspondent for *The Wall Street Journal*, recently wrote that throughout the summer, Federal Reserve officials have debated whether current interest rates are high enough to bring inflation back down to the 2% target. While price data in the spring was stronger than expected, it cooled in June and July; Friday's data for August will further test whether this improvement represents a genuine trend reversal or merely another brief respite following five consecutive years of inflation exceeding the target.
Economists project that core CPI—excluding food and energy prices—rose 0.2% month-over-month in August. Yet, a mere 0.1 percentage point difference could be all that separates a scenario justifying a continued wait-and-see approach from one compelling the Fed to raise rates.
At its July meeting, the Fed held interest rates steady, though three officials voted in favor of a hike. Since then, several officials have indicated they might join the camp favoring rate increases if inflation does not continue to improve.
Fed Chair Kevin Warsh’s remarks at last month’s Jackson Hole symposium signaled a distinct shift toward the pro-hike camp. He stated that he saw little evidence of borrowing conditions restraining the economy and that the improved inflation data seen since the summer were insufficient to convince him that the underlying trend was improving.
Warsh did not specify exactly what kind of data would satisfy him.
Vincent Reinhart, a former senior Fed economist, noted that this effectively turns the market situation into a test for the new Chair: investors have priced in a rate-hike scenario that Warsh never explicitly promised, leaving him to either deliver on it or explain why he is not doing so.