This morning, the Bureau of Labor Statistics (BLS) announced:
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent on a seasonally adjusted basis in July, after rising 0.3 percent in June…Over the last 12 months, the all items index increased 2.7 percent before seasonal adjustment.
The “core” index strips out food and energy prices on the basis of their volatility, which doesn’t change whether or not people have to pay them, of course. This:
…rose 0.3 percent in July, following a 0.2-percent increase in June. Indexes that increased over the month include medical care, airline fares, recreation, household furnishings and operations, and used cars and trucks.
Given this, what should Federal Reserve chair Jerome Powell do?
The CPI — specifically the year over year number, so this month’s 2.7% — is the inflation number you hear most commonly. The Federal Reserve’s target is actually “to achieve inflation at the rate of 2 percent over the longer run as measured by the annual change in the price index for personal consumption expenditures (PCE).” The PCE has not, in fact, been at or below 2.0% year over year growth in any month since February 2021. Worryingly, its growth rate ticked up in both May and June. In these circumstances, Powell’s course of action is clear: he should not cut interest rates.
Many, however, argue that he should, but it is not clear why. If the economy really is “sooo good,” as President Trump claimed this morning, then why the desperate need for a rate cut with inflation already above target?
A recent CBS poll found that “Inflation & Prices” matter “a lot” in 56% of voter’s evaluations of President Trump’s administration but also that 70% of Americans thought it wasn’t focused enough on lowering prices. If Powell does his job, President Trump may end up thanking him.
