The Federal Reserve’s preferred inflation measure indicates that price pressures are easing, potentially paving the way for further rate cuts this year and the next.
Inflation data showed prices rose only 0.1% from July to August, a decrease from the previous month’s 0.2% increase. Year-over-year inflation fell to 2.2% from 2.5% in July, just above the Fed’s 2% inflation target.
The big picture: Notable changes in August include grocery costs barely rising, and energy costs dropping by 0.8%, primarily due to cheaper gasoline prices.
- Core prices, excluding volatile food and energy costs, rose just 0.1% from July to August, below the Fed’s 2% target for the fourth consecutive month. Year-over-year core prices increased by 2.7% in August.
Driving the news: The Federal Reserve recently cut its benchmark interest rate by an unusually large half-point and signaled further reductions in November and December, as well as additional rate cuts in 2025 and 2026.
- With inflation nearing the Fed’s 2% target, the central bank is likely to consider more key rate cuts in the upcoming months.
- Economic indicators also show that Americans’ incomes and spending marginally increased in the past month, with higher revisions indicating better financial stability.
- Despite economic fluctuations, recent reports indicate that the U.S. economy continues to grow steadily, supported by strong consumer spending and business investment.
