Fed hopes for peak of consumer price hikes, as central bank sticks to inflation crushing goal

Now that the Federal Reserve has polished its inflation-fighting credentials, has consumer inflation topped out?

There was little relief from higher prices in April except at the gas pump. The new consumer price data will be released Wednesday.

Consumer confidence rebounded some last month for the first time since January. Despite inflation at 40-year highs, consumer expectations of an improving economy over the next six months jumped in the University of Michigan consumer sentiment survey. This is encouraging amid talk about a looming recession.

Don’t be mistaken, though. Consumer economic attitudes remain near decade lows, driven down by higher prices for all types of items. And it’s that inflation that the Federal Reserve has become markedly more aggressive toward.

By raising its target short-term interest rate last week by a one-half of 1% — its biggest one-time hike in more than 20 years — the central bank is late, but now in the inflation fight. And it sounded a note of optimism that price hikes are topping out. On Wednesday, Fed Chairman Jay Powell said, “We’ve seen some evidence” that the bank’s favorite inflation gauge is “perhaps either reaching a peak or flattening out.”

One is much better than the other, though either is preferred than what consumers and investors have been dealing with for more than a year now.

This is why Wednesday’s Consumer Price Index data is important. The index may not be the Fed’s preferred inflation measurement, but signs of it leveling or retreating would bring a welcome but cautious relief.

In March, consumer prices rose 8.5% from a year earlier. Anything less than that in April won’t signal the inflation fight is over. Far from it. As Powell said during his post-meeting press conference, “We’d want to see evidence that inflation is moving in a direction that gives us more comfort.”

Prices are not likely to fall fast. Companies want to preserve profit margins. Employees want to keep their newly realized wage gains. And the Fed likely will be raising interest rates into the near future. Its goal is to not just have inflation peak. It wants to crush it.

Tom Hudson hosts ‘The Sunshine Economy’ on WLRN-FM, where he is the vice president of news. Twitter: @HudsonsView