A slower US inflation rate after 2021 raises hopes for a slowdown

The Federal Reserve has kept its key lending rate at 5.3% — a nearly two-decade high — through July 2023, hitting the public in the form of higher rates for mortgages, credit cards and other loans.

By keeping rates high, the bank hopes to curb borrowing and reduce demand pressures that help drive up the prices of homes, cars and other goods.

But as inflation, which tracks the pace of price increases, begins to approach its 2% target rate, the central bank is under pressure to cut rates due to lower oil prices and the resolution of Covid-era supply chain crises.

The three major stock indexes in the US were little changed after the report, which came roughly as expected.

Julian Howard, chief multi-asset investment strategist at GAM Investments, said a September rate cut was now “all but certain”.

But he said he thought the central bank would be cautious in signaling the path forward, pointing to a rise in inflation last month in England, where the Bank of England recently cut rates.

“Although the UK’s above 2% figure was expected, it is still a little bit confusing when inflation comes in above target after the latest rate cut,” he said.

“Whatever the Fed does in September, it will be more interested in conveying current data bias from one meeting to the next than setting a path that fails to act.”

Inflation in the US has already fallen significantly since June 2022, reaching 9.1%.

Over the past year, prices for appliances and cars have fallen, along with prices for other items such as plane tickets and furniture.

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The price of gasoline — a key determinant of U.S. economic sentiment — fell 2.2%.

But rising prices for household items such as groceries have weighed on Democrats and put political pressure on the White House in a presidential election year.

Housing prices have risen more than 70% over inflation in the past year, as rents have risen more than 5%.

Grocery prices also rose 1.1%, while car insurance rose more than 18%.

In a statement, President Joe Biden said the report showed “fighting inflation and reducing costs for American families,” while the Trump campaign focused on a 20% price increase starting in 2021, calling the event “comalanonics.” President Kamala Harris.

On Wall Street, the data left investors divided on whether to cut rates by 0.25 percentage points or more in September.

Wells Fargo analysts said they are betting the Fed is still moving aggressively to cut rates, despite rents accelerating in July.

“With a see-saw ride in recent monthly prints, moderation in core inflation has extended beyond goods, with services inflation—particularly housing—cooling over the past year,” economists led by Sarah House wrote.

“The continued steady slowdown in inflation, coupled with the increase in the unemployment rate and decline in other labor market indicators, convinces us. [Fed] Gotta go quick.”

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