Inflation came down in June. Will it stay that way?
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What is the main topic discussed in this episode?
Happy Humphrey Hawkins Day, everybody. Inflation's a choice. We monetary policymakers need to choose lower prices, and that's the commitment my colleagues have made.
Well, I guess that about settles it, huh? From American Public Media, this is Marketplace.
In Los Angeles, I'm Kyle Risdell. It is Tuesday today, the 14th of July. Good as it always is to have you along, everybody. I know it feels like he just got the job because he kind of did. But Federal Reserve Chairman Kevin Warsh spent his morning today on Capitol Hill explaining to lawmakers how he plans to handle this economy. Timing could not have been better, actually, with that softish update on the Consumer Price Index that we got this morning, more about which on this program in a minute. But the most interesting thing about Chairman Warsh's testimony today was, in a way, what he didn't say. The unspoken subject at hand, that thing that I guess used to be called forward guidance, the Fed letting everybody know what it was going to do before it actually did it.
If we were to share with you our every passing thought, I worry not that there's anything wrong with us, but we're human. And if we were to give you my projection today about what we'll do when we meet in two weeks, what we'll do over the course of the year, that we'd then find ourselves sort of taking information that's consistent with our priors and rejecting information that's inconsistent. It's not the way we want to do things.
Calling balls and strikes is the way the chairman put it this morning. He did obviously talk about the economic issues at hand while kind of at the same time reminding lawmakers that change is a coming to the central bank.
The 63 months of inflation above target has been an unfair burden and has been a tax on the American people and businesses. We plan on getting rid of that tax. That means we need a regime change in policy, and we need new consideration of practices, some of which have been working, some of which haven't. That's what we aim to do, and we're just getting started.
That regime change and new consideration of practices are going to come with those five task forces Chairman Warsh announced a month or so ago. No date yet for their deliverables. More, by the way, on why Warsh was up on Capitol Hill today coming up in the second half of the program. So about the actual performance of this economy. Unexpected is a word you might use for this morning's inflation data. The consumer price index actually fell in June. Year over year, inflation down from 4.2% in May to 3.5% last month. Fall in gas prices, yes, sure. But even the core rate has come down to 2.6%. Still elevated, but at least a little bit closer to the Fed's 2% target. Marketplace's Mitchell Harmon did a little digging into what's what.
Economists and policymakers have been worried about the recent resurgence in inflation. So there was a lot to like in this report, starting with... The deceleration across both goods as well as services. Gargi Chaudhry at BlackRock points in particular to services where prices could have spiked thanks to soccer tourism... airfares, lodging away from home, food away from home that would have a little bit of the World Cup flavor to them, if you will. They haven't generated a meaningful inflationary impulse. Now, what the Fed might make of this report as it plots future interest rate policy to fight inflation, that's up for debate. In the dovish glass half-full camp is Jay Hatfield at Infrastructure Capital Advisors.
He points out that one big component of inflation, rent, is basically flat now. The report was very positive for future inflation. Hopefully put the Fed back on track to hold rates for now and then cut when energy prices come down when the straight reopens. In the glass-closer-to-half-empty camp is Richard de Chazelle at investment firm William Blair. It was clearly better than expected, but I don't think it quite gives us the all-clear signal. The softness of this report suggests that we won't have a rate increase at the end of July.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:02–13:37
2
How did the June CPI surprise show inflation slowing and where did it fall?
13:37–16:11
3
Which components drove June’s inflation decline — goods, services, or energy?
16:11–18:32
4
What do economists disagree about regarding the Fed’s likely response to June CPI?
18:32–26:13