News & Insights

Inflation eased for a fourth straight month in July, keeping the Federal Reserve on track to bring interest rates down from a 23-year high at the next Fed meeting, experts say.

Headline July CPI increased 0.2% month-over-month, according to the Bureau of Labor Statistics, which was in line with economists' forecast. On an annual basis, CPI came in below 3.0% for the first time since 2021. The headline print rose 2.9% last month vs expectations for a 3.0% increase, or the same annual rate of inflation seen in June.

The BLS said that the shelter component of the consumer price index was responsible for most of the advance in inflation last month.

Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) are looking for sustained evidence that inflation is decisively headed toward its long-term target of 2% before they move to cut the federal funds rate. The latest CPI report adds yet another dovish data point to the Fed's deliberations on interest rates, experts say.

"This latest report is a green light for the Fed to start an aggressive rate cutting cycle – it is freed to focus on the full-employment aspect of its dual mandate. The futures market briefly priced in 50 basis points on the heels of the Yen unwind, but has settled in at a more measured 25 basis points. We expect the 25 basis points cut in September to be the first of many consecutive rate cuts as the Fed moves quickly toward its perceived neutral rate, currently projected to be 2.8%, which it believes to be neither stimulative nor restrictive policy." – Mace McCain, Chief Investment Officer at Frost Investment Advisors

Excerpted from Kiplinger on August 14, 2024. To read full article, click here.