Following the release of the August US CPI report, Nick Timiraos, dubbed the “Federal Reserve mouthpiece,” indicated that the Federal Reserve is likely to commence a gradual interest rate cut at its upcoming meeting next week. The inflation rate dropped to a three-year low of 2.5% in August, marking a fifth consecutive month of decline.
While this cooling trend supports the case for an interest rate cut, a slightly higher-than-expected core inflation rate of 3.2% might lead to a more moderate 25 basis point cut instead of a larger 50 basis point cut.
The news prompted mixed reactions in the market, with major US stock indexes slightly lower and US Treasury yields slightly higher. However, the overall trend suggests easing inflationary pressures, which could provide some relief to households grappling with rising costs.
The slowdown in inflation is attributed to several factors, including a decrease in food price increases and a decline in used-car and energy prices. A deepening sell-off in the oil market further hints at a continued downward trajectory in prices.
This positive development comes at a crucial time as the US economy shows signs of slowing down, with hiring and wage growth decelerating, the average unemployment rate rising, and job searches taking longer.
Despite the mixed economic signals, consumer spending remains resilient, with major retailers like Walmart reporting no deterioration in consumer health.
