The Federal Reserve shouldn’t lose sight of the broader economic landscape as it heads into its next meeting in October. The latest data confirms what we’ve been saying—that tariffs are increasing inflation for targeted goods. Together, these two huge costs fuel fears about the persistent direction of inflation. Even in Washington, inflation hawks are hopeful that disinflation will reassert itself over the next year. This transformation is a beacon of optimism for attaining long-term economic prosperity.
Federal Reserve officials have noted that for some goods they are being asked to raise prices because of tariffs. Nevertheless, they still argue that long-term inflation expectations are quite well anchored around their target goal of 2%. That indicates that despite some short-term ups and downs, the longer-term outlook for the economy is strong. As the Fed gets ready for its next meeting, it intends to utilize the freshest, most up-to-date data available to make smart, effective decisions and evaluate the health of the economy.
While tariffs are still making upward pressure on prices, their effects are being absorbed more in some sectors than in others. Recent tariff increases on specific goods have resulted in significant price increases, which may in turn affect consumer choices and overall spending. The Federal Reserve is reasonably aware of these developments and is in the process of assessing how they will impact its own monetary policy playbook.
Looking ahead, most economists are forecasting a move to disinflation starting in 2024. As illustrated above, this trend represents a decrease in the rate of inflation itself. It’s a win for consumers and a win for new startup businesses. The Fed’s commitment to maintaining inflation around the 2% target remains steadfast, with officials confident that they can navigate through current volatility.
In preparation for the October meeting, the Federal Reserve is gathering comprehensive data and insights to inform its decision-making process. This future-outlooking approach is powerful and necessary in equipping the Fed with the responsiveness, flexibility, and sensitivity to rapidly changing economic conditions that is needed. Policymakers are aware that their actions will have far-reaching consequences, not only for inflation but for employment and overall economic growth.