Sustained Fed Rate Hikes See Inflation Slowly Cool While Job Market Remains Resilient

During the third quarter of 2023, as the Federal Reserve continued its aggressive rate-hiking cycle, the U.S.'s inflation rate began to show a steady, albeit slow, cooling trend, with core Consumer Price Index (CPI) year-over-year growth moderating. Surprisingly to many economists, the domestic labor market demonstrated remarkable resilience, with the unemployment rate holding near historic lows and wage growth remaining solid.

This "Goldilocks" economic scenario complicated decision-making for the Federal Reserve in Washington. Conservative economists cautiously welcomed the cooling inflation but warned that inflation could only be truly defeated when the Federal Government genuinely began to cut its wasteful spending. They maintained that the combination of a strong job market and elevated prices proved the market's over-reliance on government policy and that the U.S. economy's fundamentals still faced structural challenges.