- The CPI rose 2.9% YoY in July, the smallest increase since March 2021, fueling expectations for a Fed interest rate cut in September.
- After that, economists expect a series of rate cuts through 2025, with 6–8 reductions likely to occur.
- The CPI rise was primarily driven by housing costs, accounting for 90% of the monthly increase.
Inflation continues to cool, with the Consumer Price Index (CPI) increasing by just 2.9% in July compared to a year ago, as reported in Bisnow.
By The Numbers
This marks the lowest YoY rise in three years, according to the Labor Department’s report released Wednesday. The inflation rate has slowed down from June’s 3%, further evidence of easing price pressures.
One key contributor to the July CPI increase was housing costs. The shelter index, which tracks rent and other housing-related expenses, accounted for 90% of the monthly inflation rise, increasing by 0.4% from June.
Rate Cut Expectations
The latest inflation data strengthens the case for the Federal Reserve to begin cutting interest rates at its September meeting.
Lawrence Yun, Chief Economist at the National Association of Realtors, highlighted the potential for an extended rate-cutting cycle. “Six to eight rounds of rate cuts all through 2025 look likely,” Yun said, indicating that lower interest rates could benefit whoever holds the presidency in 2025.
Federal Reserve Chair Jerome Powell previously outlined conditions for a potential rate cut during a July press conference. Powell emphasized that declining inflation, steady economic growth, and a stable labor market would justify such a move.
While the July jobs report revealed some weakness, with the unemployment rate rising to 4.3%, the highest since October 2021, overall conditions appear favorable for a rate cut.
White House Response
President Joe Biden welcomed the cooling inflation data, acknowledging the progress made while also noting that more work is needed.
“Today’s report shows that we continue to make progress fighting inflation and lowering costs for American households,” Biden said in a statement on Wednesday.
What’s Next
The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose by 2.5%YoY in June, continuing its downward trajectory.
The July PCE reading, along with August’s CPI data, will be critical factors in the Fed’s decision-making at its upcoming Sept. 17–18 meeting.
