US Inflation Data to Show Steady Growth in July, RBC Predicts
As the Federal Reserve Grapples with Interest Rates Dilemma
Inflation data set to be released later this week in the US is expected to show steady growth in July, according to RBC estimates. The Federal Reserve is facing a challenging task of justifying higher interest rates amidst narrowing sources of price pressures.
RBC forecasts that headline price growth will hold at 3% on an annual basis, with a small 0.1% monthly increase in core prices (excluding food and energy). This trend is likely to reassure the Fed that annual rates will continue to move lower as factors influencing upward pressure on inflation diminish.
The Labor Department is scheduled to release the inflation data for July on Wednesday at 08:30 EDT. RBC notes that home rents, which contribute significantly to annual price growth, are slowing down as the impact of earlier market rent increases eases off.
Despite concerns about a potential economic slowdown, RBC believes there is no immediate need for the Fed to panic. However, the central bank's current higher interest rates policy is becoming increasingly difficult to justify as broader economic conditions normalize and inflation trends downwards.
The Fed's estimate of the long-run 'neutral' rate stands at 2.5%, significantly lower than the current rate of 5.25% to 5.5%. While a 25 basis point rate cut is expected in September, RBC suggests that the possibility of a larger cut depends on further economic growth slowdown or unexpected inflation developments.
In conclusion, the upcoming inflation data release in the US is expected to show stable growth, which could impact the Fed's decision on interest rates. Investors should closely monitor these developments as they could have significant implications for financial markets and individual finances.