Persisting Weakness in US Inflation Persists, as Core Rate Remains Stationary
The United States Federal Reserve is indicating potential interest rate reduction next week. Latest inflation figures from the major economy do not alter this trajectory. Nevertheless, analysts don't perceive any immediate need for additional measures due to the persisting robust core inflation.
Inflation in the U.S. noticeably decreased in August. The inflation rate dipped to 2.5 percent, following 2.9 percent in July, as per data from the Labor Department in Washington D.C. Economists had anticipated a decrease to 2.6 percent. As anticipated, prices went up by 0.2 percent on a monthly basis.
Excluding energy and food costs, core consumer prices increased by 0.3 percent on a monthly scale and 3.2 percent yearly. Economists had forecasted a monthly increase of 0.2 percent and a yearly increase of 3.2 percent.
"Fears of inflation have diminished significantly, yet the inflation debate is far from over, particularly concerning the core rate," remarks Bastian Hepperle from Hauck Aufhäuser Lampe Privatbank. "However, the data does not warrant a substantial interest rate adjustment."
Tobias Basse of NordLB shares this view, stating that "these numbers won't make Fed Chair Jerome Powell's already challenging job any simpler." While the steady increase in housing expenses is a concern, "the current trends on the macroeconomic price front won't impede the interest rate shift in September." The Fed may opt for caution.
Thomas Gintzel of VP Bank maintains that the Fed can reduce interest rates without any guilt. The current interest rate level might create sizable economic brakes, particularly if U.S. firms face increased credit refinancing costs in the upcoming years. Furthermore, he advocates for the Fed's prudence considering the still elevated core inflation rate.
The Federal Reserve is combating inflation with a high-interest policy but has scheduled its first reduction for September 18. The primary interest rate currently ranges between 5.25 and 5.50 percent. Fed Chair Jerome Powell gave financial markets the desired signal for a relaxing measure at the central bank forum in Jackson Hole in August: It's time to reform monetary policy, the central bank head declared.
The reduction in interest rates by the Federal Reserve next week might have a positive impact on the economy. Despite the decrease in inflation, the robust core inflation rate continues to be a concern for analysts.
