As a footnote to the December CPI numbers, it is worth to look at former Fed Vice Chair Alan Blinder’s January 5 op-ed in the Wall Street Journal where he said that the year-over-year readings for the CPI understate the progress in taming inflation made by FOMC rate hikes. He said a look at the 6-month changes would be instructive. He may have a point. The CPI for the first half of 2021 was up 2.4 percent, the second half of 2021 up 3.6 percent, the first half of 2022 up 4.6 percent, and the second half of 2022 up only 3.0 percent. The core CPI for the first half of 2021 was up 1.7 percent, the second half of 2021 up 2.8 percent, the first half of 2022 up 3.2 percent, and the second half of 2022 up 2.8 percent. The CPI excluding food, energy, and shelter rose 2.0 percent in the first half of 2021, 3.3 percent in the second half of 2021, 3.6 percent in the first half of 2022, and 2.1 percent in the second half of 2022.

Non-housing services are pushing up prices, but elsewhere there is improvement by these measures. That doesn’t mean that the FOMC is done raising short-term rates. Fed policymakers are going to need more data that persistent inflation is coming down to sustainable levels to convince them that it will stay there. This means additional tightening of monetary policy and keeping it there for a while. They are willing to risk overtightening to ensure that inflation is tamed rather than letting up too soon and having to restart the process. I would continue to anticipate at least one more rate hike at the January 31-February 1 FOMC meeting and possibly a shift in guidance for smaller and slower hikes in the near future while the FOMC assesses the available data and lagged effects of the 450 basis points of tightening since March 2021.

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