July CPI: The Fed Is Still In The Woods

The July CPI report was good news for Fed officials and the rest of us. Inflation is moving closer to the Fed's 2.0% target. However, the inflation picture may not be as bright as the CPI report suggests.

New York Fed President John Williams recently said that if core PCED inflation readings remain above 0.2% m/m during the second half of this year, then the Fed should tighten monetary policy. The Cleveland Fed's Inflation Nowcasting model continues to estimate a 0.25% m/m increase in core PCED inflation for July and 0.27% for August. The Fed gives more weight to the core PCED than the core CPI in setting monetary policy.