U.S. CPI July Data Fuels Fed Rate Cut Speculation Amid Easing Inflation

NAIROBI (CoinChapter.com) — The U.S. CPI July data revealed a steady increase in consumer prices, aligning with market expectations and maintaining the momentum toward subsiding inflation.

The Labor Department reported a 0.2% rise in the consumer price index (CPI) for July, marking a rebound from June’s 0.1% decline. Despite the uptick, the year-over-year inflation rate settled at 2.9%, slightly below June’s 3.0%, reinforcing expectations for a potential interest rate cut by the Federal Reserve next month.

Peter Schiff Criticizes U.S. CPI July Data Amid Rising Costs

Peter Schiff criticized the CPI figures, noting that the modest 2.9% YoY increase was mainly due to an 11% drop in used car prices, which he argues does not reflect typical American expenses. Schiff highlighted a rise in auto insurance costs by 18.6%, suggesting flaws in the CPI as a measure of inflation.

The core CPI, excluding food and energy, also recorded a 0.2% increase, consistent with the Federal Reserve’s targets. This data suggests inflation is stabilizing.

The Aug. 13 softer-than-expected Producer Price Index (PPI) had driven market gains, but the latest CPI data tempered those expectations. As a result, investors are now shifting their focus to the Federal Reserve’s next move, with speculation around a possible interest rate cut growing stronger.

Fed Rate Cut Speculation Grows as Inflation Eases

Erik Boekel, Chief Commercial Officer at DHF Capital, noted that the data aligned with expectations, leading to a cautious market response. The focus has now shifted to the Federal Reserve’s next meeting, with a possible rate cut anticipated.

Speculation about a rate cut grew stronger as the July U.S. CPI data signaled a further easing of inflation. With the annual inflation rate now below 3%, the Federal Reserve is under increasing pressure to adjust its monetary policy.

Market participants are now divided on whether the Fed will opt for a 25- or 50-basis-point cut in September.

Polymarket data shows a 73% chance of a 25 basis point (bps) decrease, reflecting strong investor belief that the Federal Reserve will opt for a more dovish stance in Sept. 2024. Additionally, a 22% chance exists for a 50 bps cut, indicating that while less likely, a larger cut remains possible.

Additionally, the CME probability for the upcoming Federal Reserve meeting on Sept. 18, 2024, shows that market participants are largely expecting a rate cut.

According to the data, there is a 62.5% chance that the Fed will lower the target rate to 500-525 basis points (bps), down from the current 525-550 bps. Additionally, there is a 37.5% probability that the rate will be reduced even further to 475-500 bps.