In August, inflation in the US economy moved closer to the Federal Reserve’s target, with the personal consumption expenditures price index rising 0.1% for the month. The 12-month inflation rate fell to 2.2%, the lowest since February 2021. Core PCE, excluding food and energy, also rose 0.1% in August and was up 2.7% from a year ago. This data is important for the Fed as they tend to focus more on core inflation as a better measure of long-term trends. Despite the positive inflation numbers, personal spending and income figures came in lower than expected.
Following the report, stock market futures were positive while Treasury yields were negative. The Fed had recently lowered its benchmark interest rate by half a percentage point to a target range of 4.75%-5%. The progress in August was seen despite continued pressure from housing-related costs, which increased by 0.5%. Services prices rose by 0.2% while goods declined by 0.2%.
Federal Reserve officials have shifted their focus from fighting inflation to supporting a softening labor market. At their recent meeting, policymakers indicated a possibility of further interest rate cuts this year and in 2025. However, markets are anticipating a more aggressive path of rate cuts. Overall, the inflation data for August suggests that the Fed may have more room to implement future interest rate cuts if needed.
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