U.S. Inflation Slows to Below 3%: Fed Rate Cut Expected

U.S. consumer prices rose moderately in July, pushing annual inflation below 3% for the first time since early 2021. This trend supports expectations that the Federal Reserve will cut interest rates next month. A rise in shelter costs contributed to the CPI increase, while food prices remained steady.

In July, U.S. consumer prices saw a moderate uptick, with annual inflation dropping below 3% for the first time since early 2021. This development reinforces the belief that the Federal Reserve might lower interest rates in the following month.

The Labor Department's report highlighted a 0.2% increase in the Consumer Price Index (CPI) for July, following a 0.1% decline in June. Shelter costs, particularly rents, were a major contributor, accounting for nearly 90% of the CPI rise. Meanwhile, food prices also went up by 0.2%, while gasoline prices held steady.

The CME Group's FedWatch tool suggests a 59% probability of a half-percentage-point rate cut at the upcoming Fed policy meeting. Despite a jump in the unemployment rate to 4.3%, many economists argue that significant labor market deterioration would be necessary to justify a 50-basis-point reduction. The Fed's current benchmark overnight interest rate remains in the 5.25%-5.50% range.

(With inputs from agencies.)