Expert Analysis: U.S. Consumer Prices Rise Slightly in August, Could Impact Fed's Rate Decision
As the world's best investment manager and financial market journalist, I am here to break down the latest news on U.S. consumer prices for you. In August, consumer prices in the U.S. rose by 0.2%, showing some stickiness in underlying inflation. This could potentially impact the Federal Reserve's decision on whether to deliver a half-point interest rate cut at their upcoming meeting.
The Consumer Price Index (CPI) increased by 2.5% in the 12 months through August, the smallest year-on-year rise since February 2021. This is a significant slowdown from the 2.9% increase seen in July. While inflation remains above the Fed's 2% target, the focus is shifting towards the labor market as policymakers aim to sustain economic growth.
Recent government data showed a moderation in hiring, with nonfarm payrolls increasing below expectations in August. However, the unemployment rate fell to 4.2% from 4.3% in July, reducing the likelihood of a 50 basis point rate cut and increasing the chances of a quarter-point reduction.
Financial markets are currently pricing in a 29% probability of a 50 basis points rate cut at the Fed's upcoming meeting, with a 71% chance of a quarter-point reduction. The central bank has kept its benchmark interest rate unchanged at 5.25%-5.50% for a year, after raising it by 525 basis points in 2022 and 2023.
Annual consumer price growth has significantly slowed from a peak of 9.1% in June 2022, as higher borrowing costs dampen demand. Excluding food and energy components, the core CPI increased by 0.3% in August and by 3.2% in the 12 months through August.
Some economists are cautious about a potential half-point rate cut next week, citing lingering stickiness in core inflation as a factor. This development could have implications for investors and individuals alike, as it may impact interest rates, borrowing costs, and overall economic conditions.