Inflation cooled again in August, all but guaranteeing the Federal Reserve will cut interest rates when it meets next week.
Prices rose 2.5% annually in August, the smallest increase since February 2021, according to Consumer Price Index data released Wednesday. Shelter was still the biggest driver of inflation, rising 0.5% in August from the previous month.
The report is the last major data release before next week's Federal Reserve Open Market meeting, when the central bank is widely expected to finally cut interest rates from its 20-year high.Â
The central bank initially began raising interest rates two years ago to rein in soaring inflation, leaving rates at 5.25% to 5.5% since last summer. With inflation inching close to the Fed's 2% target and the job market cooling, Fed Chair Jerome Powell has signaled that interest rate cuts are on the way.
Lower interest rates can have a huge impact on your money, including how much you'll pay to borrow and how much you earn on your savings. Make these moves to maximize your money before the Fed meets Sept. 17 to 18.Â
Why do inflation and interest rates matter?
Inflation is the rate that prices increase over a period of time. During the pandemic, inflation soared, topping out at 9.1% in June 2022. Runaway inflation made everything pricier, including essential living expenses like food, gas and housing. The Fed's target rate is 2%, and recent data shows that inflation may finally be approaching that goal.
And leaving interest rates too high for too long could create a drag on the economy as employers pull back on hiring and consumers stop spending. Unemployment rates rose slightly this summer, which the Fed could view as more evidence that it's time for an interest rate cut.
