U.S. Inflation Falls to 2.9% in July 2024: Will the Fed Cut Interest Rates?

The United States Bureau of Labor Statistics data shows that inflation reached 2.9% year-on-year (yoy) in July 2024.

This figure is lower than the 3.2% (yoy) recorded in July 2023. July 2024's inflation is also lower than June 2024's 3% (yoy).

According to data from The White House, the US Consumer Price Index (CPI) rose 0.2% in July 2024, which is claimed to be in line with expectations. Year-on-year, the CPI increased by 2.9%, the lowest annual growth rate since March 2021, slightly below economists' expectations of 3%.

Core inflation, which excludes volatile food and energy prices, rose 0.2% in July, also meeting expectations. Year-on-year, core CPI increased by 3.2%, the lowest annual rate since April 2021.

As reported by the Financial Times (FT), this data on declining inflation strengthens the argument for the US central bank, the Federal Reserve (the Fed), to cut interest rates next, expected in September 2024.

These figures will also raise hopes that the Fed has successfully curbed price pressures and received a positive response from the government. Lately, US voters' anxieties about inflation have been a problem for the Democratic Party in this year's presidential campaign.

According to the FT's research, Fed officials have analyzed that inflation is cooling sustainably even before interest rate cuts. This is because Americans have shown a willingness to curb their spending.

However, a sharp decline in job growth earlier this month sparked concerns that the Fed has waited too long to lower interest rates, triggering turmoil in US financial markets last week.

"I think the Fed has shifted from inflation to labor," Tom Porcelli, chief US economist at PGIM Fixed Income, told the FT on Thursday, August 15, 2024. Tom's response refers to the central bank's focus in determining when to lower borrowing costs.

"And this report I think will only reinforce that shift," he added.

(Also read: [US Inflation Eases Throughout Q2 2024](https://databoks.katadata.co.id/datapublish/2024/07/29/inflasi-as-melandai-sepanjang-kuartal-ii-2024))