The Federal Reserve is making progress in its quest to tamp down inflation, but the fight isn’t over. August inflation data released on Wednesday showed inflation continued to cool mildly from the sky-high price gains that have plagued consumers and policy makers over the past two years. Core prices, which exclude the volatile food and energy indexes and are considered the better gauge of underlying inflation, rose 0.3% over the month and decelerated to a 4.3% annual pace in August, reaching the lowest level since September 2021.
Those continued slowdowns, combined with recent softening in the labor market, will likely keep Fed officials on track to hold interest rates steady at the current 5.25% to 5.5% level when they next meet on Sept. 19-20. Markets are expecting the Fed to stay put, with the probabilities of a pause in September coming in at 97% after the data was released, according to the CME FedWatch Tool. Other details of the report, however, presented something of a mixed bag that will keep alive the possibility of further policy tightening later this year. A spike in gasoline costs over the month drove up the headline consumer-price index, leading to a 0.6% jump, the largest such increase in more than a year. That, in turn, pushed the headline index to a 3.7% year-over-year increase, up from July’s 3.2% pace and slightly above economists’ expectations of 3.6%.