- US annual inflation rate dipped below 3% in July for the first time since 2021
- The Federal Reserve is expected to cut interest rates at its next meeting in September
- Fears that the US economy was entering a recession following a weak jobs report turned out to be premature
The latest Consumer Price Index report showed inflation slowing in July, dipping below 3% for the first time since 2021. The data comes as investors anticipate the Federal Reserve will cut interest rates at its September meeting amid signs of a cooling labor market.
Inflation Slows in July, But Details Disappoint
The annual inflation rate fell to 2.9% in July, while core inflation rose 3.2% over the past 12 months. Prices increased 0.2% since June. The slowdown brings relief after inflation peaked at 9.1% in June 2022. However, details were disappointing. Rent prices rose compared to June despite being a major driver of inflation.
Markets Expect Fed to Cut Rates, But Outlook Uncertain
Markets are betting the Fed will cut rates next month, likely by 0.25 percentage points. But uncertainty remains after a massive Wall Street sell-off earlier this month stoked recession fears. While jobless claims dropped last week, indicating labor market strength, hiring also slowed in July. For the Fed, it’s a balance between price stability and employment.
Fed Focused on Inflation But Attentive to Labor Market
The Fed says it is no longer “laser-focused” on inflation after progress lowering price increases. But some officials remain wary of rate cuts. The Fed is monitoring risks to both its inflation and employment goals. At 2.9%, inflation remains above the Fed’s 2% target.
Economy Becomes Flashpoint in Presidential Campaign
The state of the economy is heating up as a political issue before the 2024 election. Polling indicates the Democratic candidate now leads the Republican on economic management, a reversal from prior surveys. The candidates are battling over who can best shepherd the economy.
Uncertainty Persists Over Fed Moves and Economic Outlook
It remains unclear whether the Fed can tame inflation without spurring a recession. For now, fears of an imminent downturn look premature following the jobs and inflation reports. But volatility persists as investors parse Fed policy and inconsistent economic data for clues on the outlook. The path ahead is murky.
