Inflation 'down', Fed cuts interest rates?

Recently, the inflation gauge showed that the rate of price increase in the US economy continued to slow down, creating conditions for the US Federal Reserve (Fed) to start cutting interest rates in September.

According to CNBC, the report stated that the personal consumption expenditures (PCE) price index increased 0.1% month-on-month and 2.5% year-on-year in June. Previously, the PCE, the Fed's preferred inflation measure, increased 0.1% and 2.6% in May, on a monthly and annual basis, respectively.

The Fed could cut interest rates by the end of 2024. Photo: CNBC

While still significantly above the Fed's 2% inflation target, the pace of PCE growth is now well down from its nearly four-decade peak, set in 2022.

In addition, the core PCE, which excludes two more volatile groups of items including energy and food prices, increased 0.2% from the previous month and 2.6% from the same period a year earlier. Monetary policymakers say the core PCE is even more important because it better reflects long-term trends, since energy and food prices tend to be more volatile than other groups of goods.

Meanwhile, a Bloomberg survey recently released showed that about half of the experts asked expect the Fed to give clearer signals on the interest rate path at its policy meeting next week.

Experts say inflation has been running at around 2.5% to 2.6% for more than six months, enough for the Fed to start cutting rates. Many analysts say the Fed should cut rates as early as next week if the central bank is truly data-dependent, as it has repeatedly asserted.

The Fed may, however, prefer not to shock the system further with a surprise cut. But the new data could set the stage for a more likely rate cut in September.

The latest report also showed that both personal income and personal spending continued to grow, reflecting the solid foundation of the US economy. However, the slower growth compared to the previous month, reflecting the cooling of the labor market and the more cautious sentiment of US consumers, will also be a factor that makes Fed officials consider cutting interest rates.

CNBC reported that the latest forecasts from CME Group's FEDWatch tool show a high likelihood of the Fed cutting interest rates next September and possibly additional cuts in November and December.

Source: https://congthuong.vn/lam-phat-xuong-thang-fed-giam-lai-suat-335266.html