U.S. Inflation Declines to 2.5% in August

U.S. inflation decreased to 2.5% in August, potentially setting the stage for the Federal Reserve to consider a gradual rate cut at its upcoming meeting. This decline follows a 2.9% inflation rate in July and is slightly below the 2.6% prediction from economists.

The inflation figure, one of the last key economic indicators before the Fed’s meeting on September 18, supports expectations for a quarter-point reduction in interest rates, currently at a high of 5.25-5.5%. Progress toward the Fed’s 2% inflation target is good news for the White House amid criticism from political opponents.

Core inflation, which excludes food and energy costs, remained steady at 3.2%, with a month-over-month increase of 0.3%, slightly higher than expected.

Following the report, the yield on two-year Treasury bonds rose, reflecting higher market expectations for a rate cut. Markets have reduced expectations for a half-point cut but still predict a total reduction of one percentage point by year-end.

In the stock market, the S&P 500 showed a slight decline, while the Nasdaq Composite had a modest increase. Factors contributing to the inflation rate included a rise in the shelter index and increased costs for airfares and apparel, while energy prices fell.

Lael Brainard, a top economic adviser to President Biden, stated that the U.S. is “turning the page on inflation.” Meanwhile, Fed officials are closely monitoring labor market data to decide on future rate cuts.

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