Inflation continued its downward trend to 2.5% year-over-year in August, the latest consumer price index report showed, reaching the lowest level since February 2021 and approaching the Federal Reserve's 2% target. The data solidified market expectations the Fed will lower interest rates when it meets next week. See how inflation works here (w/video).
The index, which tracks the annual change in prices of goods and services, reached a peak of 9.1% in 2022. It was the final metric the Fed was seen to be waiting on before next week's decision following August's mixed jobs report (see previous write-up). The Fed is now widely expected to cut benchmark rates by a quarter-percentage-point next week, down from the current range of 5.25% to 5.5%. See how the federal funds rate impacts Americans here.
Notably, while inflation cooled, "core" CPI—excluding volatile food and gas prices—held steady at 3.2% year-over-year and up 0.3% month-over-month. The data reduced traders' expectations the Fed will cut interest rates by a half-percentage point, but benchmark rates are still anticipated to drop to 4.25% to 4.5% by the end of the year.
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