Americans, long burdened by steep borrowing costs, might soon find relief.
June’s economic data reveals a promising trend: for the first time since the pandemic’s early days, consumer prices fell by 0.1% from May. This dip brought annual inflation down to 3% from May’s 3.3%.
This slowdown has stirred investor optimism about an imminent Federal Reserve interest rate cut. According to the CME FedWatch Tool, Wall Street’s confidence in a September rate cut jumped to 93% from the previous day’s 73%.
“A September rate cut should be a done deal at this point,” stated Ron Temple, chief market strategist at Lazard.
BNP Paribas economists revised their forecast, anticipating a rate cut in September, buoyed by June’s inflation and employment data. They foresee two additional quarter-point cuts in 2024.
The Fed’s dual mandate—maintaining price stability and low unemployment—has guided its recent policy.
Since 2022, the central bank has aggressively hiked rates to curb runaway inflation, holding them steady at a 23-year high since last July.
Thursday’s inflation data, coupled with a cooling but robust labor market, suggests the Fed may soon achieve its goals.
The US economy added 206,000 jobs in June, down from May’s revised 215,000, with unemployment rising above 4% for the first time since November 2021. New unemployment claims have also increased in recent weeks.
While Fed Chair Jerome Powell offered no clear timeline for rate cuts during his congressional testimony, he acknowledged that inflation is moderating and the labor market remains “strong, but not overheated”—a shift from the recent past when inflation seemed resurgent and the job market was scorching hot.
However, the Fed will scrutinize more data before its September meeting, potentially altering its course.
Some economists worry that delaying rate cuts could deepen labor market cracks. Investors fear the economy might weaken dangerously before any rate reduction.
“A September rate cut may not be the magic elixir some investors are seeking,” cautioned Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management.
In a broader economic context, the Consumer Price Index (CPI)—a key measure of average price changes for a typical basket of goods—dropped 0.1% from May, easing the annual inflation rate to 3% from 3.3%.
This marks the first monthly decline since May 2020, driven by lower gas and car prices, according to the Bureau of Labor Statistics. The annual CPI increase is now the slowest since June 2023, matching early 2021 rates.
Excluding volatile energy and food prices, the core CPI rose just 0.1% from May, its slowest pace since August 2021, bringing the annual core inflation rate down to 3.3% from 3.4%, a new three-year low.
Meanwhile, in the fast-food industry, value menus are making a comeback amid rising prices. McDonald’s $5 value meal includes a McDouble cheeseburger or McChicken sandwich, small fries, four-piece chicken nuggets, and a small drink.
Taco Bell offers a $7 bundle, 55% cheaper than ordering items individually. Burger King’s $5 meal bundle also provides a budget-friendly option.
However, the real value of these deals is debatable. Despite the “value” tag, many ingredients’ prices have dropped, meaning customers might still be paying the going rate—or more—for their meals.
As Americans navigate these economic shifts, the coming months will be crucial in determining whether the anticipated rate cuts and value menu offerings will deliver the relief many hope for.
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