Key Points:
- The Consumer Price Index report shows US inflation down from 2.6% in July, bringing it closer to the Federal Reserve’s 2% target.
- The Fed is expected to cut interest rates by 25 basis points during the September 17th meeting, with a 71% chance predicted by CME Group’s FedWatch tool.
- Following a $2 trillion stock market loss in early August, the Fed’s upcoming rate cuts aim to stabilize the economy and guide it toward a soft landing.
The latest CPI report showed that US inflation dropped to 2.5% last August 2024.
US Inflation Hits New Low in August 2024
This is considered a vital step forward for the Federal Reserve, which is considering issuing its first interest rate cuts in over four weeks. These cuts are expected to occur as early as next week and will substantially diversion from the Fed’s monetary policy course.
This surprise decline has brought the timing of rate cuts forward despite inflation exceeding the Fed’s goal of 2%. According to the CME Group FedWatch tool, the probability of a 25 bp cut at the next FOMC on September 17th rose to 71%.
Read more: US CPI Data Falls Unexpectedly in May, Signals Potential Market Upside!
Stock Market Crash Pressures Fed’s Decision
The United States has been fighting persistent inflation, particularly after the start of the pandemic. The Federal Reserve’s continuous rate hike policy for the last couple of years to tackle inflation has received mixed responses. While such hikes were essential for containing inflation, they have added more doubts about an impending delay in recovery.
August was a very critical month for all the economic indicators, and the lower-than-expected reading of the CPI came as a surprise. US inflation decreased from 2.6% in July to 2.5%, thus edging the Fed nearer to its 2% target.
This extends gains following a $2 trillion stock market meltdown in early August and puts it within a hair’s breadth of its all-time peak. The Fed was under heightened pressure to cut interest rates after the 23-year high rates of late began taking their toll on markets.
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Source: Coincu
