A More Gradual Approach
With the latest inflation data in, market expectations for the Federal Reserve’s rate cuts have shifted. While a 25 basis point cut is still likely next week, a more aggressive 50 basis point cut is now less probable.
The economic outlook remains uncertain, despite the expected rate cuts. The market’s pricing in of significant rate cuts suggests potential economic challenges ahead. However, corporate profits appear to be holding up well, which may explain the recent stock market rally.
Oil prices have been supported by a recent hurricane, but they could face downward pressure if the next president increases domestic production. The presidential election and its potential impact on energy policy could influence oil prices in the coming months.
Twenty-three years have passed since the tragic events of September 11th. The anniversary serves as a reminder of the resilience and unity of the American people.
Consumer prices rose 0.2% in August with core latest inflation higher than expected
Core vs. Headline CPI
The Consumer Price Index (CPI) has shown signs of moderation, falling slightly below its 20-year average for the first time since 2020. However, core latest inflation, which excludes food and energy prices, has been less cooperative.
Some argue that core CPI is a manipulated metric designed to downplay the impact of food and energy prices. While it’s true that core CPI focuses on underlying inflation trends, it provides valuable insights into broader price pressures in the economy.
The Federal Reserve closely monitors core CPI to gauge underlying inflation trends and make informed decisions about interest rate policy. A decline in core CPI suggests that latest inflation is moderating, giving the Fed more flexibility to cut rates.
To emphasize the impact of food and energy prices, the anti-core index, which measures latest inflation in these categories alone, is now showing deflation. This indicates that prices for food and energy have been falling, contributing to the overall decline in headline CPI.
Overall, while headline CPI has shown improvement, core inflation remains a concern. The Federal Reserve will need to carefully monitor both metrics to determine the appropriate course of action for interest rate policy.
