Stable Inflation Signals Possible Fed Rate Cut In September

It looks like Americans may have some good news, as stable inflation signals a possible September rate cut. Here's all you need to know. 

This past year and a half has been tough for many Americans, thanks to rising inflation pushing up the cost of living. For months, there have been hopeful rumors that the Federal Reserve would cut interest rates, and now this rumor looks more like a possibility in September. It's been one year since the Federal Reserve’s latest interest rate hike, which CBS News reported as the highest in 23 years. 

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But now the Federal Reserve's latest reading has shown that inflation has remained calm enough that the Federal Reserve is discussing a rate cut during the policy meeting held on July 30-31. Earlier in July, Federal Reserve Chair Jerome Powell had explained, "We are going to make these decisions meeting by meeting and the evolving data and the balance of risks." This is what is happening over the next few days.   

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During an interview at the Economic Club of Washington, Powell explained, "We didn’t gain any additional confidence in the first quarter, but the three readings in the second quarter, including the one from last week, do add somewhat to confidence." This means the current inflation is leaning toward the Federal Reserve’s target of 2%. Back in June, Powell had told U.S. Lawmakers, "More good data would strengthen our confidence that inflation is moving sustainably toward 2%." Yahoo Finance reported that the three-month annualized rate fell to 2.3% from 2.9%, which is a good sign that inflation is indeed making progress and getting closer to the 2% target. 

It's not just the Federal Reserve that believes these signals indicate a possible rate cut in September, but also other policymakers and economists. BofA Securities head of U.S. Economics Michael Gapen told Yahoo Finance that inflation during the first quarter "did not break the disinflation trend. Inflation appears to be decelerating, gradually, in the direction that the Fed wants." Wilmington Trust bond portfolio manager Wilmer Stith also believes that the signs indicate a rate cut in September, saying, "This reinforces no move in July and that they will tee up their first rate cut for the September meeting."

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In addition to stable inflation, the Federal Reserve is also looking at the job market and stable prices. The Hill reported that even though the job market is cooling, the U.S. Economy has remained remarkably strong. For example, the gross domestic product grew at an annual rate of 2.8%, which exceeded economists' expectations. Joe Biden released a press statement on social media platform X, remarking on this good news. He wrote, "Over the last year, inflation has dropped to 2.5% while our economy grew by 3.1%, we've created 2.6 million new jobs, and wages have risen faster than prices." 

When could we expect a potential rate cut in September? Market watchers are betting on seeing a rate cut during the Federal Reserve’s meeting on Sept. 17-18. As for how much interest rates could be cut in September, economists predict a rate cut of 0.25 of a percentage point. Jacob Channel, chief economist at LendingTree, wrote in an email, "At the moment, a modest cut of 25 basis points in September seems likely. If that goes well, we could even see two additional 25 basis point cuts before 2024 comes to an end." 

While all the signals of a rate cut are there and look positive, there is still no guarantee it will happen in September. 

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