A Refreshingly Cool CPI Inflation Report Must Please Warsh

Will the FOMC raise the federal funds rate (FFR) at its July 28-29 meeting? Foggetaboutit! Today's CPI inflation report was surprisingly subdued across the board. Inflation remains above the Fed's 2.0% target, so the FOMC is likely to maintain its tightening stance, which was adopted in June. However, after the latest inflation report, there is no rush for the FOMC to act, contrary to our earlier expectations.

Our Roaring 2020s scenario may be working its magic as productivity growth has reduced unit labor cost (ULC) inflation to 0.5% y/y during Q1-2026 (chart). During the previous inflation surge, ULC inflation soared due to a significant wage-price spiral, which isn't happening this time.