Investors and households still believe U.S. inflation, at 8.3% in August, will come down. Clear messaging from Chair Jay Powell and fellow rate-setters has worked. But expectations and reality are still far apart, says johnsfoley
in October and November; just a month ago investors were predicting the central bank would raise official borrowing costs by just 50 and 25 basis points, respectively.
The hard part of getting inflation down is also the painful part. America’s labor market remains red hot. The jobless rate ticked up in August, but only to a still-low 3.7%. Bank deposits are about one-fifth higher than they would have been based on pre-pandemic trends. That gives households a buffer and encourages them to keep spending.
To get actual inflation to converge with future expectations, Powell has little choice but to dampen growth, make households feel poorer, and - indirectly - put more Americans out of work. It’s not clear consumers realize how unpleasant that could be. Households polled by the New York Fed expect unemployment to rise, but
than they’ve been in years. Each new month of rapidly rising prices makes the future reckoning more painful.Consumer prices in the United States rose 8.3% in August, year-on-year, according to Department of Labor data released on Sept. 13. Gasoline prices rose 25.6% from the year before, a slowdown from the 44% rate of increase in July, but food prices increased by 11.4%, the fastest rate since 1979.
Excluding energy and food, the consumer price index rose 6.3%, faster than the previous month’s 5.9% annual rate. The Federal Reserve targets an inflation level of 2%. Market prices imply the Fed is likely to raise interest rates by 75 basis points at its next meeting on Sept. 21.Editing by Peter Thal Larsen, Amanda Gomez and Sharon Lam
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