The Case for Fed Cuts Suddenly Has Some Holes

The case for Federal Reserve interest-rate cuts has always revolved around the idea that inflation was tame outside of the effects of tariffs, which policymakers supposedly ought to “look through” when setting monetary policy. The most prominent proponent of this way of thinking is Christopher Waller, the influential Fed governor who is a favorite to soon succeed Jerome Powell as the next chair of the central bank. Unfortunately for those who are optimistic that rates will be lowered imminently, the inflation data for July released on Tuesday should give pause.

While the consumer price index rose just 0.2% from June, prices of non-housing services rose 0.5%, the hottest reading since January. They were pushed higher by airline fares, dental services and event admissions, among other things (clearly not the sorts of products that you’d associate with President Donald Trump’s multi-front global trade war.) Granted, services inflation in July was tempered by more modest increases in tariff-affected categories such as household furnishings and apparel.