The US August Consumer Price Index (CPI) data shows a drop in inflation to 2.5%, matching economists' expectations.
August CPI Data
According to the data, the US CPI for August was 0.2% month-over-month, consistent with previous and estimated values. Year-over-year inflation stood at 2.5%, down from 2.9%, and aligning with the forecast. Core CPI for August increased by 0.3% month-over-month and 3.2% year-over-year, matching previous data and estimates.
Expected Rate Cuts
The Kobeissi Letter notes that the drop to 2.5% inflation is the lowest since March 2021 and expects the US Fed to cut rates next week for the first time since 2020. According to the Financial Times, this is one of the last major economic releases before the Fed's next meeting scheduled for September 18, where a rate cut from the current range of 5.25 to 5.5% is anticipated, the highest level in 23 years.
Market Reaction
Following the data release, the yield on two-year Treasury bonds, which tracks interest rate expectations and moves inversely to price, rose by 0.08% points to 3.69%. Contracts tracking the S&P 500 were down 0.5%, while those for the Nasdaq 100 also fell by 0.5%. In contrast, the crypto market showed no significant volatility following today's CPI data release. The US Fed has been seeking assurance that inflation is cooling before reducing interest rates. The previously set target for inflation was 2%, as noted by the Financial Times.
The drop in US inflation to 2.5% in August aligns with economists' expectations of a possible rate cut next week. This development could significantly impact financial markets and the broader economy.
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