Inflation Data Shifts Fed Focus from 'If' to 'How Much' on Rate Cuts

The latest inflation data has shifted the focus from whether the Federal Reserve will cut interest rates to how much they will cut. With CPI falling below 3%, the lowest since spring 2021, expectations for a September rate cut have solidified. However, the magnitude of the cut remains uncertain, with market bets on a 50 basis point decrease declining. The Fed will consider additional economic indicators, including the core PCE price index, August jobs report, and another CPI report, before its September meeting. While inflation’s decline gives the Fed more flexibility, balancing concerns about the labor market and recession risks will influence the aggressiveness of their easing strategy.