At the Fed’s July meeting, Federal Reserve Chair Jeremy Powell reiterated the importance of continued inflation control measures, noting that while progress had been made, it wasn’t yet enough to warrant a rate cut. Looking ahead, he noted that a rate cut “could be on the table” at the next meeting, and with the release of August inflation data, that cut seemed inevitable.

The consumer price index for August rose 0.2% month-over-month and 2.5% year-over-year (down from 2.9% in July), indicating that US inflation has cooled to its lowest point in 3 years. Grocery prices remained unchanged from July to August and the cost of petrol dropped, while the cost of airline tickets, car insurance, rent, and other housing costs grew more expensive.

August employment data, however, offered some mixed signals, with employment increasing less than expected in August, and job openings dropping to a 3-1/2-year low in July. Conversely, the unemployment rate decreased to 4.2%, the Bureau of Labor Statistics reported that productivity is on the rise, and average hourly earnings are forecast to have increased 0.3% in August after gaining 0.2% in July. Producer prices also rose slightly more than expected in August amid a rebound in the cost of services.

“While tremendous progress has been made in bringing inflation down since it reached its peak in the summer of 2022, the most recent inflation data have shown more mixed signals and a general slowing pace of disinflation,” notes Omar Eltorai, Research Director at Altus Group. “This complicates the expected path forward for interest rate cuts.”