US Federal Reserve policymakers on Friday (Jul 26) got fresh evidence of progress on inflation, fuelling expectations they will use their meeting next week to signal they could start cutting borrowing costs in September.
The personal consumption expenditures (PCE) price index edged up just 0.1 per cent last month, the Commerce Department’s Bureau of Economic Analysis reported.
That put the year-over-year increase – which the Fed targets at 2 per cent – at 2.5 per cent, after rising 2.6 per cent in May.
Fed policymakers have said they want to be confident that inflation is headed sustainably back to 2 per cent before they ease policy. The data on Friday shows they are edging closer to that goal but are still above it and they are widely expected to keep the policy rate in the 5.25 per cent to 5.5 per cent range next week to retain downward pressure on prices.
But US central bankers, who have kept rates where they are since last July, are increasingly focused on the potential for harm to the labour market if they keep borrowing costs far above inflation for too long.
The unemployment rate, at 4.1 per cent, is still low by historical standards but has risen in recent months, and job growth has slowed.
“From the Fed’s perspective, cumulatively, we think the data show enough progress – on both inflation and labour market conditions – for policymakers to open the door to a rate cut in September at next week’s Federal Open Market Committee (FOMC) meeting,” wrote High Frequency Economics’ chief US economist Rubeela Farooqi.
