Fed Split on Inflation Raises Stakes for September Rate Decision
The Federal Reserve's July meeting ended with a hold on interest rates, but the vote wasn't exactly a portrait of consensus. The 9-3 split, with three members pushing for an immediate 25-basis-point increase, reveals where the inflation debate stands heading into fall.
The federal funds rate remains parked at 3.5%-3.75%, where it's been since the last adjustment. However, the next FOMC meeting is set for September 15-16 and a critical CPI print is expected around August 12, leaving little room for uncertainty.
June's Consumer Price Index offered something for both hawks and doves to latch onto. On a month-over-month basis, CPI actually fell 0.4%, a welcome reprieve after months of sticky readings. But when looking at the bigger picture, year-over-year inflation clocked in at 3.5%, down from 4.2% in May but still well above the Fed's 2% target.
Energy prices have been driving the improvement in the headline numbers. After spiking earlier this year, fuel costs have retreated from their peaks, pulling the broader index down with them. However, geopolitical risk remains a persistent threat, and ongoing tensions in the Middle East could push inflation back up.