Fed Rate Cut Likely in September as CPI Falls Below Expectations

Following the recent jobs report and the latest CPI figures from the BLS, the market is leaning toward a rate cut from the U.S. central bank in September.

The U.S. Bureau of Labor Statistics (BLS) published its latest consumer-price index (CPI) report on Wednesday, revealing a 2.9% increase over the past 12 months through July, falling just short of economists’ 3% forecast. This data nudged CME futures metrics upward, reflecting growing market sentiment that the latest BLS figures strengthen the case for a Federal Reserve rate cut.

Following the recent jobs report and the latest CPI figures from the BLS, the market is leaning toward a rate cut from the U.S. central bank in September. The CPI report highlighted that the “all items index rose 2.9 percent for the 12 months ending July, the smallest 12-month increase since March 2021.” Despite this, inflation continues to hover above the U.S. central bank's 2% target.

CME futures metrics show a 58.5% probability for a 25 basis points (bps) Fed rate reduction, while a 50bps federal funds rate cut stands at a 41.5% chance. Lately, there's been a lot of chatter and forecasts suggesting that hopes for a soft landing may be misplaced, with a hard recession potentially looming. Meanwhile, some economists and analysts believe inflation is now a “nonissue.”

In an interview with CNBC, Jim Baird, the chief investment officer at Plante Moran Financial Advisors, shared his perspective, stating, “At this point, the inflationary pressure that we saw build has really been dissipated significantly.” Baird emphasized, “There's this broad expectation that the worst is easily behind us.”

In a note shared with Bitcoin.com News, David Russell, the global head of market strategy at Tradestation, expressed his view that the inflation data strengthens the likelihood of a rate cut next month. “Today's CPI keeps the market on track for a potential rate cut next month,” Russell remarked.

“It was a little discouraging to see shelter tick back up after July's easing, but the trend toward lower inflation is intact. Getting the headline number under 3 percent for the first time in over 3 years was also an important milestone,” the Tradestation executive added.

What do you think about the latest inflation data and the chances of a Fed rate cut in September? Share your thoughts and opinions about this subject in the comments section below.

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