US Inflation Cools in July, Clouding Fed's September Rate Path
US CPI rose 0.1% in July, matching forecasts, while core inflation cooled to 2.5% annually, complicating the Fed's September rate decision.
US consumer prices rose modestly in July, a reading that could weaken the case for an interest rate increase when the Federal Reserve meets next month.
The Labor Department reported Wednesday that the Consumer Price Index (CPI) edged up 0.1% in July, following a 0.4% drop in June — the first monthly decline in six years. On an annual basis, inflation stood at 3.4%, slightly down from 3.5% in June.
Excluding volatile food and energy prices, the core CPI rose 0.2% in July after holding steady in June. The annual core rate eased to 2.5% from 2.6% the previous month. Both headline and core figures matched the expectations of economists polled by Varta Wire.
The report arrives after data last week showed surprise job losses in July, adding to uncertainty about the economy's trajectory. Before the CPI release, financial markets had priced in roughly a 46% chance of a rate hike at the Fed's September 15-16 policy meeting, according to CME's FedWatch tool.
Policymakers will still have August's inflation and employment reports in hand before that meeting. Economists anticipate consumer price growth will accelerate in August, partly due to recent increases in oil prices, and expect job growth to rebound as seasonal distortions fade.
The Fed left its benchmark overnight interest rate in the 3.50%-3.75% range at its last meeting.
While the US has been cushioned from the oil price shock triggered by the Middle East conflict — thanks to its position as a net oil exporter and the drawing down of petroleum inventories — some economists warn this buffer cannot last indefinitely. They note that the US and other nations will eventually need to replenish inventories, which could keep oil prices elevated.
President Donald Trump, in an interview released late Monday, accused Iran of being "devious negotiators" and described his options in the conflict as either letting Tehran fail economically or hitting it "really, really hard."
Even with cooler inflation readings, consumers are unlikely to find much relief, as wages have not kept pace with prices. The high cost of living has soured many Americans' views of Trump and could weigh on Republican prospects in the November midterm elections, which will determine control of Congress. Trump won the 2024 presidential election largely on his promise to lower inflation.