Americans will get a clearer picture of where the economy is headed on Thursday, when August data for the Consumer Price Index, which tracks the cost of a broad basket of goods and services, including groceries, rent and medical care, is released.
The report lands just days before the Federal Reserve will announce if it will cut its key interest rate on Sept 17.
Economists surveyed by Bloomberg expect the CPI data to show overall prices up 2.9% from a year ago, an increase from June and July’s 2.7% pace. Together with Wednesday’s producer price index year-over-year reading of 2.6%, the data will likely show that price growth is still running well above the Fed’s 2% target.
While inflation has cooled from its June 2022 year-over-year peak of 9.1%, prices have climbed roughly 9% since July 2022, straining household budgets.
At the same time, job gains have slowed. That underscores the challenge the Fed faces in balancing its dual mandate of stable prices and full employment, says New York Fed President John Williams.
For that reason, Thursday’s CPI report will be “one of the most consequential” of the year, says Bankrate financial analyst Stephen Kates, especially since the “prospect of renewed price acceleration across both essentials like groceries and services such as electricity is deeply concerning, particularly as labor market growth slows and unemployment rises.”
Experts expect borrowing costs to decrease
Despite concerns about rising prices, a quarter-point interest rate cut is seen as a 90% certainty as of Wednesday morning, according to the CME FedWatch Tool, which tracks market expectations for Fed moves in real time.
That would lower the Fed’s benchmark rate to a range of 4% to 4.25%, bringing down borrowing costs on credit cards, auto loans and other types of financing. Looking further out, markets have penciled in at least one or two more cuts by 2026.
For households, the impact won’t be immediate: credit card interest charges could dip within a billing cycle or two, while auto and personal loans may take a few months to adjust. The savings will likely be modest at first — like a few dollars off a monthly credit card bill — but could increase if more cuts follow.
The current benchmark interest rate of 4.25% to 4.5% has been described as “restrictive” by Fed chair Jerome Powell, and with the job market weakening, a cut would aim to keep the slowdown from getting worse.
Federal Reserve Governor Christopher Waller signaled support for such a move, telling CNBC last week that the labor market “has come in much softer.”
“Usually when the labor market turns bad, it turns bad fast… So for me, I think we need to start cutting rates at the next meeting,” Waller said. “I don’t see a recession in my forecast at all, but I do see slower growth through the year, mainly because of the tariff impacts.”
While he says tariffs can push prices higher, Waller also said they may amount to a one-time bump rather than a lasting source of inflation.
That said, with a September cut all but assured, “future cuts are far from guaranteed,” says Kates. “A series of hotter-than-expected inflation reports could shift the focus back to controlling runaway price increases.”
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