Chair of the Federal Reserve of the United States Jerome Powell speaks during a Senate Banking, Housing, and Urban Affairs Committee hearing on the Semiannual Monetary Policy Report to Congress at the U.S. Capitol on July 9, 2024 in Washington, DC.Bonnie Cash/Getty Images
A Glimpse of Relief from High Borrowing Rates
Americans seeking relief from high borrowing rates might not have to wait much longer. Fresh data from June revealed that consumer prices fell for the first time since the early months of the pandemic. The consumer price index dropped 0.1% from May, easing the annual inflation rate to 3% from 3.3%.
Rate Cut Expectations Rise Sharply
Wall Street is now betting heavily on a rate cut in September. According to the CME FedWatch Tool, the odds of the Federal Reserve lowering rates in September surged to roughly 93% on Thursday, up from 73% the previous day.
“A September rate cut should be a done deal at this point,” wrote Ron Temple, chief market strategist at Lazard, in a Thursday note.
BNP Paribas Adjusts Forecasts
BNP Paribas economists also updated their base case to reflect a rate cut in September, citing the mix of June inflation and jobs data. They now expect two quarter-point cuts in 2024.
Federal Reserve’s Dual Mandate
The Federal Reserve’s dual mandate is to keep prices stable and maintain low unemployment levels. The central bank began hiking interest rates in 2022 to control runaway inflation and has held them at a 23-year high since last July.
Encouraging Economic Signs
Thursday’s data, combined with a cooling but resilient labor market, suggest that the Fed might be able to meet its dual mandate and begin easing high rates in September. The US economy added 206,000 jobs in June, slightly down from May’s revised figure of 215,000 jobs, and the unemployment rate rose above 4% for the first time since November 2021.
Fed Chair Jerome Powell’s Testimony
During his congressional testimony earlier this week, Fed Chair Jerome Powell acknowledged the moderation in inflation and described the labor market as “strong, but not overheated.” This marks a shift from previous months when inflation seemed to be reaccelerating, and the job market remained extremely tight.
Uncertainty Remains
Despite the positive signs, the Fed will need to review more data before its September meeting, which could impact its decisions. Some economists worry that if the Fed does not cut rates by September, the labor market could weaken further. Investors are also concerned about potential economic weakening before the rate cut.
Analysis by Brent Schutte
“A September rate cut may not be the magic elixir some investors are seeking,” wrote Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, in a Monday note.
Consumer Price Index Data
In June, Americans burdened by rising prices received some good news. The Consumer Price Index (CPI), which measures the average change in prices for a typical basket of goods and services, fell 0.1% from May. This helped to reduce the annual inflation rate to 3% from 3.3%, according to the latest report from the Bureau of Labor Statistics (BLS).
Declining Prices
Falling gas prices and a drop in new and used car prices contributed to the first month-on-month decline since May 2020. On an annual basis, consumer prices are increasing at their slowest pace since June 2023, matching the lowest annual rate since early 2021.
Core Inflation Slowdown
Excluding energy and food prices, the closely watched “core” index of underlying inflation also slowed more than expected. The core CPI rose 0.1% from May — its slowest pace since August 2021 — lowering the annual rate of core inflation to 3.3% from 3.4%, marking a new three-year low.
Value Menus: Are They Really a Bargain?
Value is the new buzzword at fast-food chains nationwide. After rising prices deterred customers, restaurants responded by unveiling value menus. For instance, McDonald’s now offers a $5 value meal, including a McDouble cheeseburger or McChicken sandwich, small fries, 4-piece chicken nuggets, and a small soft drink.
Taco Bell has introduced a $7 meal deal, which includes two types of tacos, a five-layer burrito, chips with nacho cheese sauce, and a medium drink, making it 55% cheaper than ordering the items individually. Similarly, Burger King offers a $5 meal bundle.
Evaluating True Value
However, the value of these meals may not be as great as it seems. Prices for many key ingredients used in these value meals are decreasing, meaning customers might just be paying the going rate, or more.
#USEconomy #FederalReserve #InflationRelief #RateCut #EconomicForecast
Analysis by Krystal Hur, CNN, Re-written with updates on 14.07.2024, First Published 8:30 AM EDT, Fri July 12, 2024