In August, inflation in the US economy eased closer to the Federal Reserve’s target, with the personal consumption expenditures price index rising by 0.1%. The 12-month inflation rate was at 2.2%, down from 2.5% in July. Core PCE, excluding food and energy, also rose by 0.1% in August and was up 2.7% from a year ago. Despite the positive inflation numbers, personal spending and income figures came in lower than expected.
Following the report, stock market futures were positive while Treasury yields were negative. The progress in inflation came after the Fed recently cut its benchmark overnight borrowing rate by half a percentage point to a target range of 4.75% to 5%. The central bank had not cut rates since March 2020 during the early days of the Covid pandemic.
While housing-related costs increased and services prices rose in August, goods prices declined. Fed officials have shifted their focus from fighting inflation to supporting the labor market, which has shown signs of softening. At their meeting, policymakers indicated the likelihood of another half percentage point in cuts this year and a full point in reductions for 2025, though markets expect a more aggressive approach.
Overall, the inflation numbers in August were seen as positive, indicating progress towards the Fed’s target and potentially opening the way for future interest rate cuts. The economy continues to show resilience despite some slowdown in economic growth, with inflation remaining stable and not showing signs of significant acceleration.
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