U.S. inflation drops to lowest level since early 2021

CBS News

11 Sept 202404:46

Summary

TLDRThe Federal Reserve is targeting a 2% inflation rate for economic stability, with August's Consumer Price Index at 2.5%, slightly above target but down from July's 2.9%. Gas prices have dropped nearly 12% year-over-year, with the average August price at $3.39 per gallon. Despite short-term inflation rising 0.2% due to food and housing costs, the Fed is expected to cut interest rates, possibly more cautiously than anticipated. Market watchers are split on the Fed's pace, with some advocating for a faster rate cut to counter economic weakness, while others warn of potential confidence issues. The job market is a key focus, with any slowdown potentially prompting quicker Fed action.

Takeaways

🎯 The Federal Reserve's target for inflation is 2% to ensure price stability and long-term economic prosperity.
📈 In August, the Consumer Price Index grew at an annual rate of 2.5%, slightly above the target but down from 2.9% in July.
📉 Gasoline prices have fallen by nearly 12% since last year, with the average price in August at $3.39 per gallon.
🏠 Short-term inflation, or month-over-month changes in prices, was up 0.2% in August due to high food and housing costs.
🏦 The Federal Reserve is prepared to begin cutting interest rates as the U.S. approaches its 2% inflation goal.
🤔 There is some 'stickiness' in inflation, particularly in areas like housing, insurance, and daycare, which are stubbornly high.
📉 The market expects a smaller rate cut than previously thought, possibly only a quarter of a percent, due to the stickiness in inflation.
📊 There is a split discussion on how fast the Fed should move to cut interest rates, with some advocating for a more aggressive approach.
👥 The job market is being watched closely, with a slowdown potentially prompting the Fed to move more quickly on interest rates.
🌐 There is uncertainty in the market, and the Fed's actions could influence confidence and economic activity.

Q & A

What is the Federal Reserve's target for inflation?
-The Federal Reserve is aiming for 2% inflation to ensure price stability and long-term economic prosperity.
What was the annual rate of Consumer Price Index growth in August?
-In August, the Consumer Price Index grew at an annual rate of 2.5%.
How do recent gasoline prices compare to the previous year?
-Since this time last year, gasoline prices have fallen by nearly 12%.
What was the average price of a regular gallon of gas in August according to the Energy Information Administration?
-The average price of a regular gallon of gas in August was $3.39 according to the Energy Information Administration.
What is the current price of a regular gallon of gas according to AAA?
-AAA reports that the current price of a regular gallon of gas is even lower at $3.25.
What was the short-term inflation rate last month?
-Short-term inflation, the change in prices over a month, was up 0.2% last month.
What factors contributed to the short-term inflation rate increase last month?
-The increase in short-term inflation last month was partly due to high food and housing costs.
What might the Federal Reserve's reaction be to the current inflation numbers?
-The Federal Reserve might be frustrated by the stickiness in inflation and could take a more patient path of interest rate cuts.
What is the Federal Reserve prepared to do next week according to its chair?
-The Federal Reserve is prepared to begin cutting interest rates next week as the U.S. approaches its 2% inflation goal.
What might be the market's interpretation of the Federal Reserve's actions on interest rates?
-The market might interpret the Federal Reserve's actions as a tweak down of rates by a quarter of a percent rather than 50%.
What other economic indicators might be worth watching besides inflation?
-Other economic indicators worth watching include job market activity, weekly unemployment claims, and sentiment indicators from the Federation for Independent Businesses.
What did Fed Chairman Jerome Powell discuss in his keynote address at the annual retreat in Jackson Hole?
-Fed Chairman Jerome Powell discussed the Fed's twin mandate of price stability and full employment coming into better balance.
What does the current economic assessment suggest about the economy's performance?
-The last assessment suggests the economy is ticking at a 2.5% clip, which is incredibly well.

Outlines

00:00

📈 Economic Overview and Fed's Inflation Approach

The Federal Reserve is targeting a 2% inflation rate to ensure price stability and long-term economic prosperity. In August, the Consumer Price Index (CPI) grew at an annual rate of 2.5%, slightly above the target but down from 2.9% in July and below economists' expectations. Gasoline prices have fallen by nearly 12% since last year, with the average price of a gallon of regular gas in August being $3.39 according to the Energy Information Administration, and AAA reports an even lower current price at $3.25. Short-term inflation was up 0.2% last month, partly due to high food and housing costs, which might indicate lingering inflationary pressures. The Fed is expected to begin cutting interest rates next week as the U.S. approaches the 2% goal, according to its chair. The market is interpreting the inflation data and expects a smaller rate cut than previously anticipated.

Mindmap

Keywords

💡Federal Reserve

The Federal Reserve, often referred to as 'the Fed,' is the central banking system of the United States. It plays a crucial role in the economy by influencing monetary policy, including interest rates, to maintain economic stability and achieve goals such as maximum employment and stable prices. In the script, the Fed is highlighted for its efforts to target a 2% inflation rate to ensure long-term economic prosperity.

💡Inflation

Inflation refers to the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. Central banks like the Fed aim to control inflation. The script mentions that the Fed aims for 2% inflation to ensure price stability. The Consumer Price Index (CPI) grew at an annual rate of 2.5% in August, which is slightly above the target.

💡Consumer Price Index (CPI)

The Consumer Price Index is a measure that tracks the weighted average of prices of a basket of consumer goods and services, providing a data point on inflation. The script reports that in August, the CPI grew at an annual rate of 2.5%, indicating a slight inflation above the Fed's target.

💡Gasoline Prices

Gasoline prices are a component of the broader inflation data and are closely watched by consumers and policymakers. The script notes that gasoline prices have fallen by nearly 12% since the previous year, with the average price of a regular gallon of gas in August being $3.39 according to the Energy Information Administration.

💡Interest Rates

Interest rates, set by central banks like the Fed, influence the cost of borrowing and thus have a broad impact on economic activity. The script suggests that the Fed is prepared to begin cutting interest rates as the U.S. approaches its 2% inflation goal, which would typically stimulate economic activity by making borrowing cheaper.

💡Economic Prosperity

Economic prosperity refers to a state of economic growth and stability that benefits a wide segment of society. The script connects the Fed's goal of 2% inflation to ensuring long-term economic prosperity, suggesting that price stability is a precursor to broader economic well-being.

💡Stickiness in Inflation

Stickiness in inflation implies that price levels are slow to adjust downwards even when economic conditions might suggest they should. The script uses the term to describe the Fed's observation that certain prices, such as those for housing and services, remain stubbornly high despite overall inflation being close to target.

💡Rate Cuts

A rate cut refers to a central bank's decision to lower interest rates to stimulate economic activity. The script discusses the Fed's potential for rate cuts, suggesting that the market anticipates this move but might be disappointed if the cuts are not as aggressive as expected.

💡Soft Landing

A soft landing refers to a scenario where an economy slows down without falling into a recession after a period of growth. The script mentions that the market is watching to see if the Fed can achieve a soft landing outside of inflation, which would indicate a well-balanced economic outcome.

💡Job Market

The job market encompasses all aspects of employment, including job creation, unemployment rates, and wage growth. The script highlights the Fed's focus on the job market, suggesting that indicators such as weekly unemployment claims and sentiment from businesses are closely watched as they can influence the Fed's policy decisions.

💡Economic Activity

Economic activity refers to the various actions and transactions that occur within an economy. The script suggests that the market is considering how a potential rate cut might affect economic activity, with some fearing that a less aggressive rate cut could signal a lack of confidence from the Fed.

Highlights

The Federal Reserve aims for 2% inflation to ensure price stability and long-term economic prosperity.

Consumer Price Index grew at an annual rate of 2.5% in August.

Inflation is slightly above the target but down from 2.9% in July.

Gasoline prices have fallen by nearly 12% since last year.

The average price of a regular gallon of gas in August was $3.39.

AAA reports the current price is even lower at $3.25.

Short-term inflation was up 0.2% last month, partly due to high food and housing costs.

The Fed might interpret lingering inflationary pressures as evidence for a smaller rate cut.

The Federal Reserve is prepared to begin cutting interest rates next week.

There is some stickiness in the various measurements that the Fed uses to read price pressures.

Core underlying prices are stubbornly high in shelter, insurance, and daycare.

The Fed is likely to take a more patient path with interest rate cuts.

Wall Street has been looking for movement from the Fed for months.

The market is split on whether the Fed should move faster or be cautious.

The market is looking for support from the Fed but may have to wait longer for the ultimate destination.

Fed Chairman Jerome Powell discussed the Fed's twin mandate of price stability and full employment.

The job market is being watched closely by Wall Street for signs of economic slowdown.

The economy is holding up incredibly well, ticking at a 2.5% clip.