Inflation holds steady as Fed nears rate cuts
Inflation held steady in July, as American households spent more money and saw their incomes rise slightly, according to data released Friday by the Bureau of Economic Analysis.
The personal consumption expenditures price index — the Federal Reserve's preferred way to measure inflation — rose 0.2 percent last month and 2.5 percent over the past year. Both the monthly and annual inflation rates came in close to economists' expectations.
Household incomes also rose 0.3 percent, and consumer spending rose 0.5 percent without adjusting for inflation. Inflation-adjusted consumer spending still rose 0.4 percent.
The new inflation figures come less than a month before the Fed is expected to cut interest rates at a highly anticipated September policy meeting.
Fed Chair Jerome Powell said last week that "the time has come" for the central bank to begin reducing borrowing costs after keeping them at two-decade highs for more than a year.
The Fed's baseline interest range has been set at 5.25 percent to 5.5 percent since July 2023.
"This is a double dose of good news on inflation and economic growth. Inflation prints are slowly but surely becoming boring again as this report continues the recent streak of benign core and headline inflation prints," Olu Sonola, head of U.S. economic research at Fitch Ratings, wrote in a Friday analysis.
"Consumer spending continues to surprisingly exceed all expectations, a clear indication that the economy continues to be in good shape with solid above-trend growth. The question now is how much of a consumer spending slowdown will we see during the remaining months of the year as the labor market continues to cool?"
The Fed is expected to cut interest rates by at least 0.25 percentage points at the conclusion of its two-day policy meeting Sept. 18. An unexpectedly weak jobs report or a surprising dip in the consumer price index data for August, both of which arrive before the Fed meeting, could lead to a steeper cut.
"A 25 basis point interest rate cut is pretty much set in stone in September, but the Fed will still hope the jobs report next week does nothing to pile on the pressure for a 50 basis point cut," Sonola said.
Updated at 9:21 a.m. ET
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Tag: | Federal Reserve |
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