A recent paper from the Chicago Fed argued that most of the effects from the Fed’s rate increases have already passed through the economy, and that the current level of rates are enough to bring inflation back down to 2% by mid-2024 without a recession.īut some central bankers think the Fed isn’t done raising rates just yet. It’s unclear how much economic activity will slow because of the Fed’s action, and when that could begin to take hold. That’s despite the Fed’s most aggressive rate-hiking campaign since the 1980s. US inflation, as measured by the CPI, has slowed steadily from its four-decade high in June 2022 as the broader economy held steady and the job market remained intact. “However, the pickup in inflation may increase the chance of additional tightening before year-end, as getting the inflation genie back in the bottle does not appear as straightforward as some would have hoped.”įinancial markets see a 97% chance that the Fed will decide to pause, according to the CME FedWatch Tool, while the chances of another pause in November are lower, at around 58%.įed officials are still hopeful they can pull off a so-called soft landing, a scenario in which inflation slows down to the Fed’s 2% target without a sharp rise in unemployment or a recession.
“Today’s inflation report likely does not move the needle much for the ahead of its session next week - no rate hike remains the base case, especially given the considerable tightening that has yet to completely work its way through the economy,” wrote Jason Pride, chief of investment strategy and research at Glenmede, in an analyst note. The Fed is still widely expected to hold rates steady next week because of several factors poised to facilitate inflation’s slowdown, such as weaker consumer spending and a cooler US job market - but an additional rate hike beyond September remains a possibility. “Firmer energy prices, if sustained, could feed through to the core and make the Fed’s jobs harder in terms of returning inflation back to its 2% target on a sustained basis, but I think we’re going to see that dynamic overwhelmed by the continued unwinding of some of the supply and even demand distortions that we’ve seen since the pandemic,” she said.
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