The Federal Reserve has taken drastic measures against inflation with rapidly rising interest rates for months, but their efforts are barely noticeable.
CPI data for September showed little to no change on Thursday compared to March, when the Fed began raising rates.
Total consumer prices rose 8.5% year-on-year.
Today, consumer prices are up 8.2%.
Core prices rose 6.6% annually in September, a level last seen in 1982.
Christopher S. Rupkey, the chief economist at Fwdbonds, an economic research firm, wrote:
“This inflation report today was an unmitigated disaster. It shows whatever Fed officials are doing, it is just not working.”
The Fed has redoubled its effort to drive inflation out of the US economy by any means necessary.
They introduced massive rate hikes to curb demand for goods and services.
Despite rising interest rates, there is almost no sign of price easing.
Either way, the Federal Reserve remains stoic about its decisions, betting that the country’s strong labor market can tolerate the stress of higher borrowing costs.
“The Fed will see this as a license to stay aggressive,” said Jan Szilagyi, the CEO of investment research firm Toggle AI.
Thursday’s inflation report is the final comprehensive economic review Fed policymakers will conduct before their next meeting in early November.
The report again guarantees a rate hike of 0.75%.
Investors currently have a 97% chance of seeing a fourth consecutive three-quarter percentage point rise.
The Federal Reserve strives to hold interest rates down to maintain price stability.
Fed Chairman Jerome Powell acknowledged that the broader impact of rising borrowing costs would inflict financial hardship on households and businesses.
The Fed recently adopted a mantra to hurt now rather than let inflation seep into the consumer psyche.
At Wednesday’s most recent meeting, Fed officials stressed that the cost of not doing enough to contain inflation outweighs the cost of doing too much.
The belief suggests that the Fed would push the US economy into recession rather than a downward inflationary spiral.
Meanwhile, consumers endure the pain of high prices and high borrowing costs.
The struggle could also escalate with job losses.
The Federal Reserve believes the strong labor market contributed to inflation.
They cited other factors, including supply chain disruptions, the war in Ukraine, and companies raising prices when costs fall.
Kurt Rankin, Senior Economist at PNC, said:
“Rather than walking a tightrope between a ‘soft landing’ and recession…the Fed now faces the potential of killing off the economy’s job creation impetus beyond a simple rebalancing of the labor market in the name of taming inflation.”
The fight against inflation
In the fight against inflation, the Federal Reserve is enduring an uphill battle.
Interest rate hikes’ impact should be felt in the real economy within a few months.
Fed Vice Chairman Lael Brainard said:
“The moderation in demand due to monetary policy tightening is only partly realized so far.”
He noted that the “transmission of tighter policies” is most evident in the housing market, especially with mortgage rates more than doubling this year.
“We continue to see a tale of two economies in the data,” chimed in Sam Khater, the chief economist at Freddie Mac.
“Strong job and wage growth are keeping consumers’ balance sheets positive, while lingering inflation, recession fears, and housing affordability are driving housing demand down precipitously.”
Recent CPI reports bring economists and investors back to reality, where millions of Americans feel deeply they are spending more on necessities like food and shelter.
More and more people are controlling inflation by relying on credit cards, which become more challenging to repay as interest rates rise.
The Food at Home Index rose 13% YoY last month.
Meanwhile, emergency shelters have grown 6.6%, the fastest over three decades.
Despite rising mortgage rates, housing costs have gotten bolder, according to Joe Brusuelas, chief economist at RSM, who also said:
“Whatever relief in core inflation that is in the pipeline… it is not flowing through to an easing in rents.”
According to Rupkey, rate hikes have won the battle against falling commodity prices but are losing ground due to price hikes in the service sector.
“Today’s red hot inflation report brings the economy closer than ever to recession next year,” said Rupkey.
“Supply chain bottlenecks, a volatile global energy market, and rampant corporate profiteering can’t be solved by additional rate hikes,” said Rakeen Mabud.
Mabud is the chief economist of the left-leaning Groundwork Collaborative policy group.
“It’s time for Chair Powell and the Fed to step aside and for Congress to step in.”