Surging prices for gas, food and rent catapulted U.S. inflation to a new four-decade peak in June, further pressuring households and likely sealing the case for another large interest rate hike by the Federal Reserve, with higher borrowing costs to follow.
Some economists have held out hope that inflation might be reaching or nearing a short-term peak. Gas prices, for example, have fallen from the eye-watering $5 a gallon reached in mid-June to an average of $4.66 nationwide as of Tuesday – still far higher than a year ago but a drop that could help slow inflation for July and possibly August.
In the immediate aftermath of the 2020 pandemic recession, as Americans focused their spending on items for the home, like furniture, appliances and exercise equipment, supply chains became overwhelmed and prices for physical goods soared. But as consumer spending has gradually shifted away from goods and toward services like vacation travel, restaurants meals, movies, concerts and sporting events, some of the highest price increases have occurred in services.
The persistence of high inflation has unnerved Chair Jerome Powell and other Fed officials, who are engaged in the fastest series of rate hikes since the late 1980s to try to slow the price spikes. The central bank is expected to raise its key short-term rate later this month by a hefty three-quarters of a point, as it did last month, with potentially more large rate hikes to follow.
Consumers have started to pull back on spending, home sales are falling as mortgage rates rise and factory output slipped in May. Yet steadily robust job growth points to an economy that is still expanding, with little sign of an imminent recession. And wholesale used car prices are also falling, which point to declining used car prices in the coming months.
Central Bankers need to stop taking baby steps of 50-75bpts increase. Their key mandate is Inflation & it requires Volker shock just raise 250-300bpts
I thought it was transitory.