One Good Inflation Report Isn’t Enough

July was a reprieve for American families. Gasoline prices fell by 80 cents a gallon. Consumers got more relief on everything from airfares to hotel lodgings. Prices are still very high, but that is not a problem that can be solved in a single month.

Most of that relief, however, came from favorable volatility—the flip side of the unfavorable volatility of previous months. Taking out food and energy, core inflation rose 0.3% in July. That is very low compared with recent months but still a 3.8% annual rate, much faster than most anyone was expecting six months ago and well above the Fed’s target. Other inertial measures—trimmed mean and median CPI—rose at around a 6% annual rate in July.

Of course the Fed shouldn’t make decisions on a single month’s data. Just as the incredibly high inflation in May and June was likely an aberration that overstated underlying inflation, the July numbers probably understate them. Add that personal-consumption-expenditure inflation was higher than expected since the last Federal Open Market Committee meeting and wage growth is either staying very high or increasing. It would be hard to make the case that the underlying inflation rate in the economy is lower than 4%.

The data since the FOMC meeting has said consistently that the immediate recession risks have diminished. Strong job growth and the lowest unemployment rate in 50 years say the Fed has even less to worry about on the other part of its dual mandate, which is employment stability. Add positive surprises in forward-looking indicators for manufacturing, services, factory orders, and other data and the Atlanta Fed’s GDPNow model is currently tracking 2.5% GDP growth in the third quarter.

Though the inflation job is far from done, financial conditions have actually been easing, not tightening. While the Fed raised rates by an extraordinary 75 basis points at back-to-back meetings, that doesn’t matter for the economy. Everything that does is going in the opposite direction. Mortgage rates are down 80 basis points from their peak, inflation-adjusted long-term interest rates are down, the dollar has weakened, and the stock market is up.

The market has shifted to expecting 50 basis points at the next FOMC meeting. That may be the right prediction, but based on the data to date, it would be the wrong policy. Plenty of things could happen between now and September that would justify something else. But the Fed is still so far from its inflation target that it can’t afford to continue to let financial conditions ease. Better to be more aggressive now than to have a bigger problem to deal with later.

Mr. Furman, a professor of the practice of economic policy at Harvard University, was chairman of the White House Council of Economic Advisers, 2013-17.