Inflation may have edged up again this month, but the White House says the end is near.
The Federal Reserve's preferred inflation indicator rose 2.5% annually in July, the same as it did in June and coming in slightly under expectations. Month over month, inflation inched up 0.2%, according to the personal consumption expenditures index released today by the US Commerce Department.
Inflation is still up, but it's nearing the Fed's 2% goal. Jon Donenberg, deputy director at the White House's National Economic Council, told CNET that inflationary pressure and supply chain disruptions from the pandemic have eased. Now, there's a light at the end of the proverbial tunnel.
"It's pretty clear in the data that we are past the spike in inflation," he told CNET. "We are really at the tail end now of working that all out of the system."
Core inflation, which excludes food and energy, rose 2.6% annually and 0.2% month over month in July. Donenberg noted that both headline and core inflation are at the lowest levels they've been in three years.
The latest inflation data, along with signs of a cooling job market, will likely strengthen the case for interest rate cuts at the Fed's meeting on Sept. 17-18.
"I expect a quarter-point cut barring a big surprise in the employment report on September 6," Robert Fry, chief economist at Robert Fry Economics, said in an email.
The Fed has kept the federal funds rate at a target range of 5.25% to 5.50% since last summer in an attempt to bring soaring inflation back down to 2%. At an economic symposium last week, Fed Chair Jerome Powell said, “The time has come" for an interest rate cut.
When will prices come down?
As inflation is showing signs of cooling, Fry points out that only means prices aren't rising as quickly as they have been, but they are still rising.
"Consumers/voters want prices to come down," he said. "Prices of some goods and services might come down, but the Fed is not going to allow prices broadly to come down. That's deflation, and the Fed thinks deflation is something to be avoided at all costs."
Donenberg said that the White House is focused on plans for lowering costs in key areas, particularly for groceries, housing and healthcare. He noted that housing inflation tends to lag, which means we'll likely have to wait longer for any relief there.
"Because of the time it takes to construct homes and because of the rent cycle, it can often take a longer period of time for housing prices to normalize," he said.
When will the Fed cut interest rates?
If all goes as expected, we could finally get some relief from high interest rates starting as early as September. Lower interest rates can ease mortgage rates and credit card APRs, but that also means savings rates on CDs and high-yield savings accounts are likely to drop. Fry added that September's cut won't have much impact overall. We'll need to see several more rate cuts before the relief is felt.
Once rates start dropping, savers may lose a little in interest, Fry noted. He recommends moving your money from savings accounts and money market funds into long-term bonds and CDs.
