U.S. inflation remained stubbornly high in July, keeping pressure on the Federal Reserve to consider another interest rate hike.
The latest data showed inflation at 3.7% annually, unchanged from June and well above the Fed’s 2% target. Core inflation, which excludes food and energy, also remained elevated at 3.3%.
Federal Funds Rate, 2016–2026
Year Rate
2016 0.40%
2017 1.00%
2018 1.83%
2019 2.16%
2020 0.36%
2021 0.08%
2022 1.68%
2023 5.03%
2024 5.14%
2025 4.21%
2026 3.63%
Fed officials have already warned that rates may need to rise if inflation fails to keep falling. Boston Fed President Susan Collins said the central bank may need to tighten policy soon if there isn't continued progress on inflation.
The challenge is that the economy is also showing signs of slowing, with second-quarter GDP growth holding at an annualized 1.5%. That leaves the Fed balancing two risks: keeping rates high enough to bring inflation down while avoiding unnecessary damage to economic growth.
A September rate hike isn't certain, but the latest inflation numbers have put it firmly back on the table.
We haven’t been down to the 2% target since Covid.
It would be a no-brainer to raise rates if it weren’t blatantly about politics.
That’s a fair point, but I’d be careful with saying it’s blatantly political. Inflation is still well above 2%, and the Fed has a genuine reason to consider tighter policy.
That’s what I meant. Tighter policy is obvious from a fundamentals standpoint. We’ve had elevated inflation for something like 25 straight quarters.
At this point it’s less about a temporary inflation spike and more about how persistent the problem has become.