Fed’s Interest Rate Hikes Successfully Cool Inflation, But Persistently High Core Inflation Remains a Concern

The US government reported on Wednesday that inflation had cooled to its slowest pace in more than two years, with the Consumer Price Index growing at an annual rate of 3%. This is down sharply from the 4% annual rate reported in May, but still above the Federal Reserve’s 2% target rate.

Economists are focusing more on “core” inflation, which strips out volatile food and energy prices, as it presents a truer gauge of price increases. Core inflation rose 4.8% on an annual basis.

The cooling of inflation is seen as a sign that the Federal Reserve’s interest rate hikes have steadily slowed price increases across the economy. The Fed has raised its benchmark rate by a substantial 5 percentage points since March 2022, and is all but certain to increase it again when it meets in two weeks.

The persistently high underlying inflation remains a nagging concern for the Fed, as it could indicate that the economy is overheating. The Fed is expected to continue to raise rates in order to keep inflation in check and ensure economic stability.

Overall, the cooling of inflation is seen as a positive sign for the US economy, as it indicates that the Fed’s rate hikes are having the desired effect. However, the Fed will need to continue to monitor inflation closely in order to ensure that it remains at a manageable level.