U.S. inflation drops to lowest level since early 2021
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
📈 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
💡Inflation
💡Consumer Price Index (CPI)
💡Gasoline Prices
💡Interest Rates
💡Economic Prosperity
💡Stickiness in Inflation
💡Rate Cuts
💡Soft Landing
💡Job Market
💡Economic Activity
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.
Transcripts
SPRINGFIELD, OHIO, THANK YOU SO
MUCH.
>> Reporter: THANK YOU.
♪
>>> THE FEDERAL RESERVE IS
AIMING FOR 2% INFLATION TO
INSURE PRICE STABILITY AND LONG
TERM ECONOMIC PROSPERITY.
IN AUGUST THE CONSUMER PRICE
INDEX GREW AT AN ANNUAL RATE OF
2.5%.
INFLATION THAT'S SLIGHTLY ABOVE
THE TARGET BUT DOWN FROM 2.9%
IN JULY AND BELOW ECONOMISTS'
EXPECTATIONS.
SINCE THIS TIME LAST YEAR
GASOLINE PRICES HAVE FALLEN BY
NEARLY 12%.
THE ENERGY INFORMATION
ADMINISTRATION SAYS 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, THE
CHANGE IN PRICES OVER A MONTH,
WAS UP 0.2% LAST MONTH, IN PART
DUE TO HIGH FOOD AND HOUSING
COSTS, A SIGN THAT THE FED
MIGHT INTERPRET AS EVIDENCE OF
LINGERING INFLATIONARY
PRESSURES WHICH MIGHT MAKE AN
EXPECTED RATE CUT SMALLER THAN
EXPECTED.
FOR MORE ON THIS, I WANT TO
BRING IN MARTIN BACKERDAX,
SENIOR EDITOR AND CHIEF MARKET
CORRESPONDENT FOR FINANCIAL
NEWS SITE "THE STREET."
GOOD TO BE WITH YOU AGAIN.
THE FEDERAL RESERVE IS PREPARED
TO BEGIN CUTTING INTEREST RATES
NEXT WEEK AS THE U.S.
APPROACHES THIS 2% GOAL
ACCORDING TO ITS CHAIR.
HOW DO YOU THINK THEY READ
THESE NUMBERS?
>> Reporter: IT'S INTERESTING,
ISN'T IT, BECAUSE WE'RE SEEING
SOME STICKINESS IN THE VARIOUS
MEASUREMENTS THAT THE FED TRIES
TO USE TO SORT OF READ THE PATH
OF PRICE PRESSURES GOING INTO
THE ULTIMATE AND BEYOND.
YOU TALK ABOUT THAT HEADLINE
RATE 2.5%.
IT IS POSTED THE FED'S TARGET,
BUT WHEN WE START TO STRIP AWAY
SOME OF THE MORE VOLATILE
COMPONENTS AND LOOK AT CORE
UNDERLYING PRICES, THEY'RE
STUBBORNING HIGH IN SHELTER,
THINGS LIKE INSURANCE AND
DAYCARE AND ALL SORTS OF OTHER
EXPENSES THAT CAN'T REALLY BE
AVOIDED.
I THINK TO SOME DEGREE THE FED
IS GOING TO BE A LITTLE
FRUSTRATED BY THAT AND AS A
RESULT, THEY'RE PROBABLY LIKELY
TO TAKE THAT PATH OF INTEREST
RATE CUTS A LOT MORE PATIENTLY.
THAT MIGHT TEST THE PATIENCE OF
WALL STREET BECAUSE THEY'VE
BEEN LOOKING FOR MOVEMENT FROM
THE FED FOR A NUMBER OF MONTHS.
THEY'LL GET IT NEXT WEEK IN
WASHINGTON.
THEY JUST WON'T GET AS MUCH AND
MAY HAVE TO WAIT LONGER FOR THE
ULTIMATE DESTINATION.
>> TO HELP PEOPLE UNDERSTAND
THAT, THE MARKET IS LOOKING AT
THESE NUMBERS AND SAYING THE
FED SEEING THE STICKINESS IN
INFLATION MIGHT JUST TWEAK
RATES DOWN A QUARTER OF A
PERCENT RATHER THAN 50%.
IS THAT THE THINKING?
IF THAT'S THE THINKING, WHAT
DOES THE MARKET THEN THINK WILL
HAPPEN TO ECONOMIC ACTIVITY?
>> Reporter: THAT'S PRECISELY
RIGHT, JOHN.
I THINK AT THE MOMENT YOU HAVE
SORT OF A SPLIT DISCUSSION.
YOU HAVE THOSE WHO WOULD LIKE
TO SEE THE FED MOVE FASTER,
MAYBE EVEN CUT INTEREST RATES
BY ABOUT A HALF A PERCENTAGE
POINT TO GET IN FRONT OF WHAT
PEOPLE THINK WILL BE ECONOMIC
WEAKNESS GOING FORWARD.
THERE ARE OTHER PEOPLE WHO SAY
IF THE FED WERE TO MAKE THAT
DECISION, THEY MIGHT BE SEEING
THINGS ON THE ECONOMIC HORIZON
THAT WE ARE NOT AND THAT COULD
INDUCE SOME LACK OF CONFIDENCE.
THAT'S EXACTLY WHAT THE MARKET
DOESN'T NEED AT THIS POINT
BECAUSE THERE'S SO MUCH
UNCERTAINTY OUT THERE ALREADY.
IT IS A BIT OF A KNIFE EDGE,
BUT I THINK YOU'VE PLACED IT
REALLY WELL IN THE SENSE THAT
WALL STREET IS LOOKING FOR
SUPPORT FROM THE FED.
IT'S GOING TO GET IT.
IT JUST MAY TAKE A LITTLE BIT
LONGER.
>> WHAT ELSE ARE YOU WATCHING
OR SHOULD ANYBODY BE WATCHING
IN TERMS OF WHETHER THE FED
SAYS ABLE TO ACHIEVE THE SO-
CALLED SOFT LANDING OUTSIDE OF
INFLATION?
WHAT ELSE MIGHT BE WORTH
KEEPING AN EYE ON?
>> Reporter: WELL, FED
CHAIRMAN JEROME POWELL MADE A
KEYNOTE ADDRESS AT THE ANNUAL
RETREAT IN JACKSON HOLE,
WYOMING, THEY HAVE, SOUNDS LIKE
QUITE A NICE GATHERING I MUST
SAY.
THEY DO IT EVERY YEAR.
ITS KEYNOTE ADDRESS IS
SOMETHING WE ALL PAY ATTENTION
TO AND HE TALKED ABOUT THE FACT
THE FEDS' TWIN MANDATE -- ONE
OF THEM IS ABOUT PRICE
STABILITY, BUT THE OTHER IS
ABOUT FULL EMPLOYMENT -- IS
COMING INTO BETTER BALANCE.
SO THE FED IS LOOKING AT THE
JOB MARKET WITH A LOT MORE
PRIORITY THAN MAYBE IT DID IN
THE PAST.
AS A RESULT, WALL STREET IS
VERY MUCH FOCUSED ON JOB MARKET
ACTIVITY, PARTICULARLY THINGS
LIKE WEEKLY UNEMPLOYMENT
CLAIMS, SENTIMENT INDICATORS
FROM THE FEDERATION FOR
INDEPENDENT BUSINESSES, AND
MANY OTHERS.
IF WE SEE A SLOWDOWN IN THE JOB
MARKET AND THERE WAS EVIDENCE
OF THAT IN THE AUGUST NUMBERS,
THE FED WILL BE REMINDED TO
MOVE PERHAPS A BIT MORE QUICKLY
BECAUSE NOT ONLY WILL THAT MEAN
SLOWER INFLATION GOING FORWARD,
UNFORTUNATELY IT COULD MEAN A
COOLING, BROADER ECONOMY INTO
THE AUTUMN MONTHS.
IT HAS TO BE SAID THE ECONOMY
IS HOLDING UP INCREDIBLY WELL.
THE LAST ASSESSMENT SAID THE
ECONOMY IS TICKING AT A 2.5%
CLIP.
THAT IS REALLY FI
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