US core CPI year-on-year (%)
It has been on a declining trend since peaking last year, which is what has allowed the Fed to pause on rate hikes. But at ~4%, there is still much uncertainty in terms of identifying if the trend will be able to keep up until core prices reach the pivotal 2% target.
As for the report this week, the reading is expected to ease further to 4.1% in September. And so, while the trend is encouraging, the Fed can’t quite declare victory just yet – and not likely any time soon. As such, policymakers will want to stick with the narrative of higher rates for longer for as long as they can get away with it.