US Inflation Hits the Brakes: CPI Growth Slows to 2.5% in August, Paving the Way for a Potential Fed Rate Cut
US Announces Slower-Than-Expected Consumer Price Index Growth in August
The United States announced that the annual growth rate of the Consumer Price Index (CPI) in August slowed more than expected, sparking calls for an interest rate cut by the US Federal Reserve (Fed) next week.
Impact on the US Economy and 2024 Presidential Election
A potential interest rate cut by the Federal Reserve would increase demand in the United States, the world’s largest economy, bringing some positive economic news to the Democratic Party as the 2024 presidential election enters its final stage.
Consumer Price Index (CPI) Report
The US Department of Labor announced that the Consumer Price Index (CPI) increased by 2.5% in August compared to the same period last year. This represents a slowdown from the 2.9% growth rate in July and the smallest annual increase since February 2021.
The annual increase in US CPI in August was also lower than the estimates of economists polled by Dow Jones Newswires and The Wall Street Journal.
White House Response
White House national economic adviser Lael Brainard stated that the August CPI report “shows that we are heading into a new chapter in terms of inflation, which has dropped to 2.5%, close to the level seen in the month before the pandemic began.”
Core CPI and US Labor Market
Excluding volatile food and energy prices, core CPI increased at an annual rate of 3.2% in August, roughly flat. The US CPI increased by 0.2% in August compared to the previous month, in line with expectations.
In addition to the gradual slowdown in CPI growth, the Federal Reserve’s preferred inflation indicator, the Personal Consumption Expenditures Price Index (PCE), is also moving towards the Federal Reserve’s long-term target of 2%.
The US labor market has also cooled, shifting the focus of Federal Reserve policymakers from inflation to unemployment and hinting at a potential interest rate cut.
Market Expectations
Market investors are divided on whether the Federal Reserve will cut interest rates by 1 percentage point next week or by 2 percentage points in one go.