US Inflation Moderates as Fed Faces Decision on Rate Cuts

The latest US Consumer Price Index (CPI) data revealed moderating inflation at 3.4% in July, falling below expectations. Core inflation dropped to 2.5%, down from 2.6% in June.

Economists Neil Shankar and Kevin Headland agree that this cooldown is a signal of an economy normalizing, but not necessarily a reason for the Federal Reserve to cut interest rates. In fact, they believe the Fed should stay on hold through its September meeting.

The moderating inflation trend, combined with a softening labour market, has led some economists to reassess their views on future rate hikes. However, Shankar notes that there is still a risk of AI-related capital expenditures contributing to inflation in the near term.