Fed’s favorite inflation gauge drops more than expected, paving way for further cuts

The
Fed
implemented
its
first
rate
cut
since
the
pandemic
last
week,
lowering
rates
by
half
a
percentage
point
and
signaling
that
further
reductions
could
be
on
the
horizon.
Jay
Powell,
the
Federal
Reserve
Chair,
has
emphasized
the
central
bank’s
commitment
to
maintaining
a
strong
labor
market
while
managing
inflation.
The
Fed
targets
a
2%
inflation
rate.

The
state
of
the
US
economy
is
a
focal
point
in
the
upcoming
November
presidential
election,
and
the
recent
rate
cut
has
sparked
criticism
from
Republican
candidate
Donald
Trump.
Trump
has
voiced
concern
over
the
Fed’s
handling
of
inflation
under
President
Joe
Biden’s
administration,
which
saw
inflation
peak
in
2022.

Market
expectations
regarding
the
Fed’s
next
move
are
mixed.
Investors
are
divided
between
the
likelihood
of
a
quarter-point
or
a
half-point
cut
at
the
central
bank’s
meeting
following
the
election.
“If
the
Fed
wants
to
cut
by
another
50
basis
points
in
November,
the
inflation
data
isn’t
going
to
stand
in
their
way,”
said
Omair
Sharif,
economist
at
Inflation
Insights
to
the
Financial
Times.

However,
Torsten
Slok,
chief
economist
at
Apollo,
told
the
newspaper
a
smaller
rate
cut
might
be
more
appropriate.
“August’s
figure
for
core
PCE,
which
strips
out
volatile
food
and
fuel
prices,
argues
for
a
smaller
quarter-point
cut
in
November,”
he
noted.

Core
PCE,
which
excludes
food
and
energy
prices,
rose
by
2.7%
annually,
in
line
with
economists’
predictions
and
slightly
up
from
the
2.6%
increase
recorded
in
July.
Slok
added, “Overall
the
trend
in
inflation
is
certainly
looking
better.
Things
are
moving
in
the
right
direction
for
the
Fed.”