Fed 'Truly Has A Green Light' To Cut Rates By 0.5% After July Producer Price Report, Says Economist

The Producer Price Index for July released Tuesday showed a decline following an unanticipated rise in June, much to the relief of the markets.

“The PPI data this morning came in lower than expected – across the board – which is good news for those investors that worried the Fed would have to be more cautious in lowering interest rates due to lingering inflation,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

He said traders will look to retail sales for any signals on consumer spending as they anticipate the release of July’s Consumer Price Index on Wednesday.

“If tomorrow's CPI report comes in lower than expected, like this morning's PPI report did, then the Fed truly has a green light to cut rates by 50 bps at their next meeting if they deem it necessary to quickly get back to neutral in the face of a looming slowdown in the economy,” he said.

Read Also: Producer Inflation Could Tee Up Traders For Crucial Consumer Price Index Release

Jamie Cox, managing partner for Harris Financial Group, echoed Zaccarelli’s sentiment on the Federal Reserve lowering its key interest rate (currently between 5.25% to 5.50%) at its Sept. 18 meeting after keeping it unchanged at its last meeting in July.

“The runway is clear for the Fed to cut rates in September,” he said. 

“If data like this persists, the Fed will have plenty of room to cut rates further this year.”

The overall index went up 2.2% on an annual basis compared to a year ago, dropping well below June’s 2.7% increase and under a 2.3% expected jump.

The headline PPI for final demand in July ticked up 0.1% from June, easing from June’s 0.2% month-over-month upswing and registering below economist forecasts of 0.2%, according to Trading Economics.

The final demand energy index rose by 1.9%, while the final demand services basket fell by 0.2% last month to achieve the largest drop since March 2023.

The core PPI, which accounts for final demand prices that exclude foods, energy, and trade services, remained flat from June to come in below estimates of 0.2% and June's revised 0.3% growth.

Read Next:

• June Producer Inflation Exceeds Forecasts, Restrains Investor Euphoria Following Consumer Price Relief

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