August's Consumer Price Index (CPI) data came in-line with economist estimates. However, there was a slight surprise in the core CPI print — a measure that leaves out food and energy costs— which crept up by 0.3% from July, above the 0.2% increase economists expected.
What does this mean for the Federal Reserve as it prepares to ease interest rates at its September policy meeting? Yahoo Finance senior Fed reporter Jennifer Schonberger breaks down the top three key points from this inflation report that might influence the Fed's decision on monetary policy next week.
For more expert insight and the latest market action, click here to watch this full episode of Catalysts.
This post was written by Angel Smith
Today's CPI print showing prices are moderating. This is one of the final key pieces of data that the Fed is getting before making its decision on a potential rate cut next week. Here with the three things this report signals about the Fed's path forward is our very own Jennifer Schonberger. Hey, Jennifer.
Hey, Brad. Indeed, one of the last pieces of data and that fresh reading on consumer prices this morning likely to keep the Federal Reserve on track to cut rates by 25 basis points next Wednesday. Consumer prices coming in lower on a headline basis and holding steady on a core basis for the month of August. Looking at those numbers specifically on a core basis, excluding volatile food and energy prices, those increased by 3.2%. Uh, that was in line with expectations and holding the same level as July. So what does this say about the Fed's path forward? Well, first, this data underscored that inflation continues to move down slowly, and a large reason for that is housing. You look at the data for today, the index for shelter rose half a percent for the month of August, and that was a major culprit in keeping inflation elevated. This data taking odds of a 50 basis point rate cut off the table. Indeed, take a look at Fed funds futures this morning. Investors now betting on a 25 basis point rate cut, uh, now at 85% odds, I should say, um, risen on the back of this data. Now, all this said, this was the fifth straight report of good inflation. Recall, back in the first quarter, inflation looked like it was stalling, and Fed officials had said that they need more than a quarter's worth of good data to cut rates. And if you look at the trend of inflation data indeed over the past five months, we are seeing that. Now, second, while the Fed has been very focused on inflation now that it's showing signs of coming down, officials have made clear that they are more focused on the labor market. And if we looked at the jobs report for the last month in August, it did not warrant a 50 basis point rate cut. That said, you look at the revisions for July, which was already weak along with June, and they were bad. So if we see further deterioration in the job market, then that could cause the Fed to cut by larger increments. Finally, given the path for inflation, given that the job market is cooling but not in a recession, and that the economic growth is perhaps slowing but not contracting, that likely keeps the Fed on track for three 25 basis point rate cuts for the remaining policy meetings for this year, including next week's, guys.
All right, Jennifer. Thanks so much for breaking that down for us.
