What Does the US Inflation Data Mean? Will There Be a Rate Cut in September and If So, How Much Will It Be? Here are the Answers

The latest Personal Consumption Expenditures (PCE) report released today has received positive feedback from analysts who suggest that inflation may have finally peaked.

Peter Cardillo, chief market economist at Spartan Capital Securities, called the report “all good numbers,” confirming that inflation is on a downward trajectory. Personal income growth has remained modest, while consumption growth suggests the likelihood of a recession in early 2025 is minimal, according to Cardillo.

Cardillo predicts the Fed will soon begin cutting rates, but the extent of the cuts remains a matter of debate. “Whether it’s 25 or 50 basis points depends entirely on next week’s employment data,” Cardillo said. He added that if employment growth falls below 100,000, a 50 basis point cut becomes more likely, especially if inflation continues to trend downward. Cardillo sees the Fed likely making three rate cuts, starting with a 0.5 basis point cut in September, depending on the employment data. Otherwise, a 25 basis point cut in September followed by a 50 basis point cut in December is likely.

Sam Stovall, chief investment strategist at CFRA Research, echoed those views, saying the PCE report was largely in line with analysts’ expectations and that market reaction was minimal. Stovall said the report reinforced recent comments by Fed Chairman Jerome Powell emphasizing the importance of employment trends over inflation concerns. “Inflation is not something the Fed is overly concerned about right now, but they will be watching the employment situation closely,” Stovall said.

Analysts also noted that the recent Jackson Hole symposium set the stage for a possible rate cut in September, and today’s PCE data strengthened the case for a 25 basis point cut instead of 50. Although the data was in line with expectations and had little impact on yields, the market remains focused on the possibility of a more significant rate cut in November or December. However, if prices continue to gradually cool without a sharp decline, investors may need to adjust their expectations.

*This is not investment advice.