Have Wall Street’s prayers been answered at long last? The Federal Reserve announced today that inflation has held at 2.5 per cent over the year to July.
This comes in lower than the 2.8 per cent path forecast by Fed officials in June. The better-than-anticipated figures solidify expectations that rate cuts will begin in mid-September.
Today’s inflation data complements Fed Chairman Jerome Powell’s dovish Jackson Hole speech last week in which he asserted that the “time has come” for interest rate policy adjustments. Alongside falling inflation, Powell cited cooling labour market figures, wage gain moderation, and steady economic growth as rationales for the long-deferred pivot.
Many analysts now believe that either a 0.25 or even a 0.5 per cent cut from the current, 23-year-high, fed-funds rate of 5.25-5.5 per cent is “all but certain”. Nearly two years of erroneous rate-cut predictions have left investors wary, but Wall Street seems to believe this is the real deal as the Dow hit a record high yesterday and the S&P continues to inch upwards.
Others are not convinced that inflation is gone for good, and contest the Fed’s chosen metric. The 2.5 per cent measurement of “core” PCE excludes food and energy prices due to their presumed volatility, and thus fails to account for where most Americans are feeling the greatest strain.
