US Inflation Firming Up but will Not Derail Fed Rate Cuts

U.S. underlying consumer prices increased solidly in August, leading to the largest annual gain in a year, but rising inflation is unlikely to deter the Federal Reserve from cutting interest rates again next week to support a slowing economy.

Other data on Thursday showed the number of Americans filing applications for unemployment benefits dropped to a five-month low last week suggesting the labor market remains healthy, which should continue to underpin consumer spending even as hiring has cooled. The longest economic expansion on record is under threat from the White House’s year-long trade war with China.

Fed Chair Jerome Powell said last week he was not forecasting or expecting a recession, but reiterated the U.S. central bank would continue to act “as appropriate” to keep the expansion now in its 11th year on track. But the firming inflation trend, if sustained, could constrain the Fed’s ability to ease monetary policy further.

“Concerns about too-low inflation appear misguided,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “The Fed will still cut rates next week to provide added insurance in the event that the trade war escalates, but it might think twice about moving again in October if core inflation shows any further spark.”

via Reuters

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.