What Does the Latest Inflation Data Mean for Fed Rate Cuts?
Summary from the AllSides News Team
The Federal Reserve is expected to cut rates from a 23-year high at its meeting on September 17-18. How big will the cut be?
The Data: The Labor Department said the Producer Price Index rose 0.2% in July-August. The overall Consumer Price Index rose 2.5% in August from last year. It was 2.9% in July. Core wholesale prices, which exclude energy and food prices, moved up 0.3% from July. The numbers suggest inflation is receding, and the Fed is getting closer to reaching their goal of bringing inflation down to 2%.
The Fed Cuts: According to the Wall Street Journal (Center bias), "Traders now think it is much less likely that the Federal Reserve will cut rates by 0.5 percentage point next week, following Wednesday’s hotter-than-expected core monthly inflation reading. Interest-rate futures suggest the chance of a larger-than-normal rate cut next week is now around 15%, according to CME Group, down from 34% Tuesday."
How the Media Covered It: Outlets on the right were more likely to highlight how the data may lead to a smaller rate cut due to underlying pressures, while outlets on the left focused on a rate cut happening due to improving inflation.
Featured Coverage of this Story
From the Left
Inflation Cooled in August, Keeping the Fed Poised to Cut Rates
Inflation continued to recede in August, paving the way for the Federal Reserve to lower interest rates for the first time since early 2020 at their meeting next week.
But signs of stubbornness lingered under the surface, which caused investors to ramp up their bets that central bankers will lower borrowing costs by a quarter-point from their current 5.33 percent, not the larger half-point that some had previously seen as possible.
From the Center
Why CPI Shouldn’t Be The Only Inflation Data Investors Watch
Ahead of the highly anticipated Federal Open Market Committee meeting from September 17-18, the latest inflation data provided markets and investors with some good news. The August Consumer Price Index came in at 2.5% year-over-year, down from the July level of 2.9%.
The recent trend lower has been welcomed by all. However, to be successful, investors need to understand not only the backward-looking data — such as CPI and other metrics — but also forward-looking expectations. This information is an essential input for institutional investors — portfolio managers, analysts, strategists...
From the Right
Core wholesale prices rise unexpectedly, further dimming hopes for big rate cut
Core wholesale prices excluding volatile food and energy prices rose higher than expected, further dimming hopes for a 50-basis point interest rate cut next week.
The US government’s Producer Price Index — which tracks the cost of goods and services for domestic producers — rose 0.2% last month, in line with economists’ expectations, according to a poll by The Wall Street Journal.
However, wholesale prices excluding volatile food and energy — a metric closely watched by economists to gauge underlying inflation trends — increased 0.3% in August from a month...
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