Inflation continues to cool paving the way for rate cuts next month

The July 2024 CPI reported last week will likely increase the Fed’s confidence that inflation is on the way to its 2% target.

The consumer price index increased 0.2% for the month, putting the 12-month inflation rate at 2.9%, its lowest since March 2021. Excluding food and energy, the core CPI came in at a 0.2% monthly rise and a 3.2% annual rate meeting expectations. The better-than-expected inflation report further bolstered hopes that a Federal Reserve rate cut could come next month and potentially again in December, if the inflation data continues to cooperate.

The question now is, will FED cut rates by half a percentage point at its Sept. 17-18 meeting or just a quarter-percentage-point ?

Meanwhile, investors are still pricing in just over 1% point worth of rate reductions in 2024, with three Fed policy meetings remaining this year.

By: António Costa, Alcral AG Head of Global Investments