New Inflation Data to Reveal If Cooldown Trend Persists

Fresh inflation data scheduled for release on Wednesday will reveal if the U.S. has maintained recent progress in curbing price increases.

This latest price information arrives shortly after significant market turmoil, sparked by growing concerns about the prospects for a “soft landing.” This term refers to the possibility of the U.S. dodging a recession while simultaneously bringing inflation back to manageable levels.

Wall Street’s unrest coincided with a disappointing jobs report, which suggested that the economy might be slowing down more rapidly than anticipated. This report contributed to the recent volatility in financial markets.

Economists anticipate that prices will have risen by 3% in July compared to the same month last year. If this prediction holds true, the inflation rate would remain constant from June, although it is still lower than the 3.5% year-over-year rate recorded in March.

Overall, inflation has decreased for four consecutive months, reversing a trend that began in early 2024. Prices peaked above 9% during that period, but have since cooled significantly. However, the current inflation rate still exceeds the Federal Reserve’s target rate of 2% by one percentage point.

The Federal Reserve has maintained interest rates at the highest level in over twenty years. The elevated borrowing costs for mortgages, credit card loans, and other debts have played a critical role in slowing down the economy and decreasing inflation. Yet, this policy approach also raises the risk of pushing the U.S. into recession.

According to the CME FedWatch Tool, which gauges market sentiment, there is a strong consensus that an interest rate cut will occur at the Federal Reserve’s next meeting in September. Market experts remain divided on the extent of the cut, debating whether the Fed will implement a standard reduction of a quarter percentage point or a more substantial half-point cut.

The Federal Reserve operates under a dual mandate: to control inflation while maximizing employment. In principle, lowering interest rates stimulates economic activity and boosts employment, whereas higher rates tend to suppress growth and ease inflation.

This recent period of good news regarding inflation, coupled with mixed news on unemployment, has prompted the Fed to reevaluate its priorities, said Fed Chair Jerome Powell last month. He emphasized the need to balance both mandates more thoughtfully now that inflation is on the decline.

“For a long time, since inflation arrived, it’s been right to mainly focus on inflation. But now that inflation has come down and the labor market has indeed cooled off, we’re going to be looking at both mandates. They’re in much better balance,” Powell remarked during a meeting of The Economic Club of Washington, D.C.

He further stated that any sudden weakening in the labor market might warrant a reaction from the Federal Reserve, acknowledging the interconnected nature of employment and inflation policy.

The disappointing jobs report released earlier this month aligned with Powell’s caution regarding economic conditions. During a press conference in Washington, D.C., at the end of July, he noted that the central bank would consider reducing interest rates in September, depending on further economic indicators.

“We’ve made no decisions about future meetings, and that includes the September meeting,” Powell stated. “We’re getting closer to the point at which we’ll reduce our policy rate, but we’re not quite at that point yet.”

The upcoming inflation data is highly anticipated as both market participants and policymakers assess the economic landscape and weigh their next moves in response to fluctuating conditions.

Source: ABC News