Retail gasoline prices in the United States are poised to continue their recent decline as the summer driving season ends and households fall back into more traditional schedules.
The average retail gasoline price has declined to $3.78 per gallon from a peak of $5.01 on June 13—a 21.2% drop—and wholesale futures point to sustained declines ahead.
These declines should put downward pressure on top-line monthly inflation when the consumer price index for August is released on Sept. 13.
Even with falling gas prices, the Fed should not waver from its commitment to restore price stability.
In addition, there is a reasonable probability that top-line inflation will continue to fall in September along with gas prices and quite possibly create a reading on year-over-year inflation at or near 7%, below the current 8.5% rate.
While this decline provides relief to beleaguered commuters and American households, it does not mean that the Federal Reserve will pause in its efforts to restore price stability.
We call on the Federal Reserve to lift its policy rate by 75 basis points at its meeting on Sept. 21 and continue driving the federal funds rate higher until it reaches 4% before it considers a pause in the increases.