11 September 2024
If you are covering the latest US inflation data, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“In what is the final set of inflation data before the Federal Reserve’s next interest rate decision, today’s figures highlight that for the market, the inflation problem is generally seen as ‘fixed’. Inflation moderated somewhat again in August at 2.5%, while core inflation remains stubbornly above the 3% level, remaining unchanged at 3.2%. Shelter continues to be the primary driving force of inflation, but given the headline rate is getting close to 2%, the market will not be overly concerned about that just now. As a result, inflation has gone from being the most important data source for the Fed, to probably becoming the second most important after the employment numbers.
“Given inflation has now steadied at a consistent level, a rate cut next week is now a near certainty. The big question is how much the Fed cuts rates. While controlled inflation combined with a still resilient economy suggests just a 25-basis point reduction will be enacted, there are some warning signs that might lead to a supersized 50-basis point cut instead. For now, this appears unlikely until a clearer picture from the labour market emerges, but with back-to-back rate cuts already widely expected the potential for a larger one later this year is not out of the realms of possibility.
“Ultimately, the Fed has done a good job to date to manufacture a soft landing, but it now cannot afford to act too slowly as it did when inflation was spiking back in 2021/22. Inflation has been tamed and now the focus is ensuring the soft landing does not intensify into a hard landing and economic growth takes a hit. It is a fine balancing act between the two elements of their mandate – price stability and maximum employment - but now the focus must be firmly on the second of those.”
