Inflation Remains On Downward Trend

The FOMC can take the rest of the year off. The federal funds rate is now restrictive enough to bring inflation down without causing a recession, in our opinion. The banking crisis in March, Moody's recent downgrade of several regional banks, and the Fed's latest Senior Loan Officer Opinion Survey all confirm that credit conditions are tightening. The economic data confirm that the economy remains resilient with the Atlanta Fed's GDPNow currently forecasting a 4.1% increase in Q3's real GDP. Today's CPI report for July confirms that inflation remains on a moderating trend. Tomorrow's July PPI report will most likely do the same.

The table below appears in today's CPI report. The headline CPI was up only 0.2% m/m and 3.2% y/y. The core CPI inflation rate was also up just 0.2% m/m, but 4.7% y/y. These are all well below last year's peaks and suggest that the Fed's 2.0% inflation target for 2025 is achievable without further rate hikes, in our opinion.