Following last week’s jobs report, which dashed hopes of the Fed pivoting to a less hawkish approach in its next policy meeting in November, investors are now anxiously looking ahead to Thursday’s release of the consumer price index for September. While any sign of inflation cooling could go a long way in calming the nerves on Wall Street, anything higher than last month’s 8.3 percent reading could send stocks tumbling even further.
Coming off historically low interest rates, the Fed has taken very aggressive action to tame inflation this year, raising the federal funds target rate by 300 basis points since March with another 75-point hike likely to come in November. As the following chart shows, the Fed is moving quicker than in past tightening cycles, knowing that it will bring “some pain” to households and businesses. “Restoring price stability will take some time and requires using our tools forcefully,” Fed Chair Jerome Powell said in August, adding that higher rates, slower growth and a softer labor market are “the unfortunate costs of reducing inflation”.
This chart shows changes in the federal funds target rate in past tightening cycles (in percentage points).
