Fed Set to Hold Steady as US Inflation Continues to Cool

The US Federal Reserve's decision to hold interest rates steady is gaining momentum after the latest inflation report showed a continued cooling trend. The July consumer price index (CPI) rose only 0.1% month-over-month, bringing the year-on-year rate down to 3.4%. Core CPI, which excludes food and energy prices, increased by 0.2%, but remains at 2.5% annually.

The benign inflation report comes on the heels of a poor July jobs report, further reducing the likelihood of a rate hike. Gasoline prices fell 2.9% month-over-month, while shelter costs remained subdued at just 0.1%. Used cars and trucks saw a modest increase, but most other categories experienced declines in price pressures.

The main areas of elevated price pressures were airline fares, which rose by 2.2%, mainly due to higher jet fuel prices. However, the authors of the report note that this can quickly correct lower with a deal in the Middle East.