Cautious Fed Stance Finds Support in Slowing US Inflation

The latest US consumer price index (CPI) data released in July has provided a boost to Federal Reserve Chair Kevin Warsh's cautious approach to monetary policy. The WSJ editorial published on August 12 noted that the slower-than-expected increase in CPI has weakened criticism of the Fed's decision to keep interest rates unchanged.

The CPI rose only 0.1% from the previous month, while core CPI, which excludes food and energy, increased by 0.2%. On a 12-month basis, core CPI rose 2.5%, down from 2.9% in May, and headline CPI was 3.4%, still above the Fed's 2% target.

The WSJ attributed the spring jump in prices to higher energy costs linked to the war in Iran. It also highlighted Warsh's preference for reacting to actual price data rather than relying on forward guidance, or signaling policy moves in advance.

However, real average hourly earnings fell 0.1% in July from a month earlier, and real income growth for many workers over the past year remained limited.