Major changes are likely to occur in the US economy in September Fri, Jul 12, 2024: CNN

This article was published in the CNN Business newsletter “Before the Bell.”

Americans seeking relief from high borrowing rates may not have to wait any longer.

US consumer prices fell in June for the first time since the beginning of the pandemic. Consumer prices have fallen 0.1% since May, according to the latest data released on Thursday. On an annual basis, inflation eased from 3.3% in May to 3% last month.

Investors who welcome the slowing inflation rate are predicting when the Federal Reserve (Fed) will cut interest rates. According to CME's FedWatch Tool, Wall Street's September rate cut forecast rose from 73% the day before to around 93% on Thursday.

Lazard's chief market strategist Ron Temple wrote in a Thursday memo that “the September rate cut is probably a decision at this point.”

Economists at BNP Paribas on Thursday updated the base case reflecting September interest rate cuts from a combination of June inflation and employment statistics. Also, it is predicted that interest rate cuts of 1/4 point will be carried out twice in 2024.

The Federal Reserve has two missions: stabilizing prices and keeping the unemployment rate low. The central bank began raising interest rates in 2022 to curb excessive inflation, and since July last year, interest rates have remained unchanged at the current high level for the first time in 23 years.

Thursday's data, combined with a cooling labor market, suggests that the Fed can fulfill its two missions and begin easing super-high interest rates in September. The number of employed people in June was 0.2 million6000, lower than 0.21 million5,000 in May when revised downward, and the unemployment rate exceeded 4% for the first time since 2021/11. New applications for unemployment benefits have also increased in recent weeks.

Federal Reserve Chairman Powell gave no hint as to when the central bank would begin cutting interest rates in his congressional testimony earlier this week. However, they acknowledged that inflation was moderating and that the labor market was “strong but not overheated.” Inflation showed signs of re-acceleration, which is different from just a few months ago when the job market was red-hot.

Still, the Fed still has to analyze more data before the September meeting. Some economists are concerned that if the Fed does not cut interest rates by then, a rift will begin to enter into the labor market. Some investors are concerned that there is a possibility that the economy will weaken dangerously even before that.

Northwestern Mutual Wealth Management's chief investment officer Brent Schütte wrote in a Monday memo that the September rate cut “may not be the magic pill some investors are looking for.”

Prices in June fell for the first time since the start of the pandemic

My colleague Alicia Wallace reports that even brighter news has jumped in on the inflationary side to Americans who have been suffering from soaring prices for the past 3 years.

According to the Bureau of Labor Statistics's latest report, the consumer price index (an index that measures average price fluctuations in a basket of commonly purchased goods and services) fell 0.1% from May, slowing the annual inflation rate to 3% from 3.3% in May.

The decline in gasoline prices and the decline in new and used car prices were the forerunners of the month-on-month decline since 2020/5. On an annual basis, consumer prices have been rising at the slowest pace since 2023/6, and the lowest annual rate since early 2021.

The notable “core” inflation index, which excludes energy prices and food prices, also slowed more than expected. Core CPI rose 0.1% from May, making it the slowest pace since August 2021. The core inflation rate fell from 3.4% to 3.3% per annum, reaching a three-year low.