Look At What Is Happening With Inflation And Fed Rate Cuts

With so much speculation about what is going to happen in September, look at what is happening with inflation and Fed rate cuts.

Inflation Falling
August 21 (King World News) – Gerald Celente:  The U.S. Consumer Price Index rose at an annual pace of 2.9 percent in July, falling from 3.0 percent in June and sliding below 3 percent for the first time since 2021, the Bureau of Labor Statistics (BLS) reported. 

Analysts were expecting the rate to hold at 3.0 percent, according to the consensus in a FactSet survey.

The figure “is a key psychological positive [that] shows that inflation is not only trending down, but disinflation is on track,” Sung Won Sohn, chief economist at SS Economics, said in a CNN interview. 

The lower rate combines with recent news that the jobs market and consumer spending are holding steady. 

The tide of positive data should enable the U.S. Federal Reserve to make its long-anticipated first interest rate cut in the current cycle at its meeting next month. 

The Fed has held the rate at a 23-year high of 5.5 percent since late July 2023…

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Core inflation, which screens out prices for food and gasoline, rose 0.2 percent last month from June. The overall core rate ticked down from 3.3 percent in June to 3.2 in July, its slowest since April 2021.

Shelter costs again proved stubborn. The cost of owning or renting a home climbed 0.4 percent on the month and made up about 90 percent of July’s increase, the BLS said. Housing costs were up 5.1 percent annually last month after peaking at 8.2 percent in March 2023.  

Factoring out shelter costs, core inflation grew by 1.7 percent in July, year on year, falling below the Fed’s 2-percent target rate.

Energy prices were flat in July. Groceries cost 0.1 percent more in July than in June and held the 1.1-percent annual pace steady. Restaurant menu prices went up 0.2 percent for the month and 4.1 percent over the previous 12 months. 

Prices for goods declined, including for airline fares, clothing, medical care, and used passenger vehicles. Services prices moved up 0.3 percent. 

“Any Fed official waiting for a little more data to make the decision on whether to cut interest rates got it in spades,” Christopher Rupkey, chief economist for FwdBonds LLC, wrote in a 14 August note. 

The latest reading of the Personal Consumption Expenditures Index, the Fed’s preferred inflation measure, is due out at the end of the month. It slowed to 2.5 percent in June and is expected to have fallen further since, CNN reported. 

On 14 August, interest-rate speculators were pricing in a 56.5-percent chance of a quarter-point rate cut next month and a 43.5-percent odds of a half-point reduction.

TREND FORECAST:
The U.S. economy seems poised to deliver the long-awaited “soft landing” that brings inflation to the Fed’s 2-percent target while averting a recession. The Fed’s rate cut next month will make the soft landing official.

However, the U.S. economy is not yet out of danger. 

Lurking behind the inflation and employment numbers is the issue of debt.

In the U.S. and around the world, debt at all levels—national, state, local, and personal—has piled up to record levels. We have tracked the mountain of IOUs in articles such as “Government Debt Sets Record at $97 Trillion” (11 Jun 2024), “Corporate Defaults at Highest Since Great Recession, S&P Says” (19 Mar 2024), and “Younger Americans Falling Deeper Into Debt; Delinquencies Increasing” (14 Nov 2023).

As the debt bomb keeps ticking louder, fewer businesses and households will have spare money to invest in new purchases, new job skills, new products, and new businesses. 

That poses a key danger in the U.S., where consumer spending props up two-thirds of GDP.

With the global economy still struggling, the U.S. and other countries still have work to do to avoid slipping back into a recession.

Again, we maintain our trend forecast that the U.S. and much of the world will sink into Dragflation: declining economic growth and rising inflation.  

Egon von Greyerz
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