Inflation in the US is at its slowest since 2021, increasing chances that the Federal Reserve will start cutting interest rates. This optimism comes after the United States Labor Department reported that, over the last year, prices rose by 2.9 percent
In late July and the beginning of August, inflation was closely monitored by every financial institution in the world, especially after the weaker-than-expected July 2024 Jobs Report was published. The report generated worldwide panic.
Economic analysts have predicted that the inflation rate slowdown could encourage the US Federal Reserve to cut rates, given that high-cost loans have brought inflation back to normal.
Key lending rate of Federal Reserve at highest
The Federal Reserve has maintained its key lending rate at 5.3 percent since July 2023. This is the highest in about two decades, and it has led to increased rates for mortgages, credit cards, and other loans.
The financial institution hopes that by keeping rates high, it will suppress demand for loans, which is what is driving up living costs.
Since the inflation slowdown, which almost hit its two percent target, the Federal Reserve is now under pressure to cut rates. Calls for this move have increased since oil prices have dropped, and supply chain crunches from the pandemic have been resolved.
A number of analysts believe a Federal Reserve rate cut is imminent in September.
However, skeptics are of the belief that the central bank will be more cautious, especially after the UK inflation rise. Thanks to this increase, the Bank of England was recently forced to cut rates.
Inflation in the US has dropped significantly since 2022
The United States has seen a remarkable decrease in inflation since it hit 9.1 percent in June 2022. Over the last two years, prices for many essential items, such as appliances, cars, furniture, and airline tickets, have significantly dropped.
What is worrying, however, is that oil prices have also dropped by 2.2 percent in the same period. Despite prices of certain goods dropping, the cost of living nevertheless remains a key concern for the populace, as it has dramatically increased.
Grocery prices have been steadily on the rise since 2022, and housing costs remain stubbornly high with rents increasing by 5 percent.
Both President Biden and Former President Trump commented on the topic of inflation. Thus, it is expected that it will be a hot topic in this year’s presidential election. On the one hand, President Biden said the report showed “progress fighting inflation and lowering costs for American households.”
Donald Trump, however, was more critical of the latest inflation report depicting a slowdown in consumer good increases. He remarked that the positive report was the result of “Kamalanomics,” a play on “Reaganomics.”
