The inflation data overall for July are “supportive of a sustained disinflation trend,” Macquarie said, and when combined with the recent softening in the labor market strengthens the case for near-term Fed rate cuts.
“We continue to anticipate a rate reduction of 25 bps in September with cuts also likely in November and December,” the economists added.
The bets on a series of rate cuts ahead followed a duo of CPI and PPI reports that underscored progress on slowing the pace inflation.
Data on Wednesday showed the consumer price index slowed to a 2.9% pace from a 3.0% pace in June, compared with economists estimates for 3%.
Stripping out more volatile items like food and fuel, the “core” number climbed by 3.2% in the twelve months to July, below projections of 3.3%.
The CPI and PPI readings are estimates to result in a 0.14% month on month rise in the core PCE, the Fed’s preferred inflation gauge, for the month.
Still, while a rate cut is widely expected in September, the size of the cut or futures cuts will hinge on “the data flow, with inflation and employment readings taking on particular importance.”
