Federal Reserve: Inflation data steer policy path – TD Securities

TD Securities economists Oscar Munoz and Eli Nir anticipate that the August Consumer Price Index (CPI) figures will be relatively low, allowing the Federal Reserve to maintain its current policy stance in September. They also point out that the translation between CPI and the Personal Consumption Expenditures (PCE) price index could provide further evidence of contained inflation.

Governor Waller is inclined to wait for the data to support a pause in rate hikes. However, he stressed that an unexpected surge in inflation could still prompt a rate increase. Governor Waller emphasized the significance of the August CPI report, as it will give insights into the inflation situation. The forecast suggests that CPI will be subdued, indicating a modest 0.18% month-over-month increase in core PCE.

This news would be favorable for more moderate members of the Federal Open Market Committee (FOMC) such as Waller and Williams, and it would likely keep the Fed on hold in September. The Federal Reserve is expected to continue holding rates over the forecast period. Although inflation will likely remain elevated throughout the year, the labor market has stabilized, allowing the FOMC to shift its focus to meeting its inflation mandate. If a policy shift occurs this year, it is more likely to be a rate hike rather than a cut.