(Reuters) - Investors are of a mind that the U.S. Federal Reserve has delivered its final interest rate increase to cap the most aggressive policy-tightening cycle in four decades, but central bank officials caution it is still too soon to make that call.
Last week's hike brought the Fed's policy rate to a range of 5.25% to 5.50% from near zero 16 months earlier. The aim of policymakers is to finish the task of bringing what had been the highest inflation since the 1980s a year ago at this time back to their target of 2%, measured at an annual rate.
They have made notable progress, with the Consumer Price Index (CPI) tumbling to 3% year over year in June from 9.1% a year earlier and the Fed's preferred inflation gauge - the Personal Consumption Expenditures price index (PCE) - also decelerating in June to 3% from its peak rate of 7% last summer.
Fed officials are not ready to declare victory, though. Central bank Chair Jerome Powell said last week the pieces of the low inflation "puzzle" may be aligning, but he doesn't trust it yet. He emphasized the unusually long break before the next meeting on Sept. 19-20, an eight-week gap that will feature double-doses in many instances of critical data on employment, growth and inflation, the "totality" of which he said will guide the decision to stand pat here or push rates higher still.
Here is a guide to some of the numbers shaping the policy debate:
JOB OPENINGS: (Released on Aug. 1, next release on Aug. 29)
Powell keeps a close eye on the Labor Department's Job Openings and Labor Turnover Survey, or JOLTS, to derive what has become a key metric of the imbalance between labor supply and demand - the number of job openings for each job seeker. During the pandemic there were nearly two jobs for every available worker. That ratio has dropped as the Fed's rate hikes have slowed labor market demand. In June, it was unchanged from the prior month at about 1.6-to-1, matching its lowest level since November 2021.
INFLATION (Released on July 28, next release on Aug. 10):
Headline PCE skidded to a two-year low in June but of even greater note was that the rate stripped of food and energy costs dropped more than expected to its lowest since September 2021 at 4.1%. Fed officials see that as a better indicator of underlying inflation trends and, worryingly for them, until June it had been stuck at about 4.6% since last December.
The break lower in June helped to reinforce the earlier CPI reading, and a number of economists expect continued steady progress from here. If realized, that could undercut arguments for more hikes, and may shift the Fed's relentlessly hawkish tone.
Fed officials will see one more PCE report and two CPI prints before they next sit down next month.
EMPLOYMENT (Released on July 7, next release on Aug. 4):
The U.S. economy in June added the fewest number of jobs of any month during the current streak of employment gains dating back to December 2020, a slowdown Fed officials have long been awaiting. Economists polled by Reuters estimate that cooling continued in July, with about 200,000 new jobs forecast for the report due this Friday.
Fed officials will have their eyes peeled just as closely on the report's worker pay components. Average annual wage growth held at 4.4% for a third month in a row in June rather than slowing as had been forecast, and it is predicted to have eased to 4.2% last month - encouraging progress perhaps but still a rate Fed officials see as inconsistent with their inflation target.
Policymakers will see one more employment report in early September before their next meeting.
RETAIL SALES (Released on July 18, next release on Aug. 15):
Retail sales rose less than expected in June, increasing just 0.2%. But a separate measure known as "core" retail sales, which better reflects underlying economic growth, posted a strong 0.6% gain. The overall slow pace of increase may indicate the start of a pullback by consumers, something that the Fed has been anticipating and, through its rate hikes, trying to encourage.
BANK DATA: Released every Thursday and Friday
To some degree the Fed wants credit to become more expensive and less available. That's how increases in its policy rate influence economic activity. But recent bank failures threatened both unwanted broader stress in the industry and a worse-than-anticipated credit crunch. Weekly data on bank lending to customers show loan growth is slowing. Borrowing by banks from the Fed, meanwhile, remains elevated but relatively stable on a week-to-week basis.