U.S. Inflation Rate Hits 3-Year Low as Fed Prepares Rate Cut

Inflation hit a three-year low in August, paving the way for the Federal Reserve to cut interest rates next week.
Consumer prices rose 2.5% on last year, according to the Labor Department, which is the fifth consecutive annual decline and the smallest increase since February 2021.
Inflation rates are a good sign of how well the country’s economy is functioning, and the drop in inflation means that the Federal Reserve is likely to cut interest rates.
A 0.25% cut in interest rates is expected which would reduce borrowing costs across the economy, affecting mortgages, auto loans, and credit cards.
The inflation data also has the potential to shape the final weeks of the presidential race.
Both candidates for president have pledged to tackle inflation and lower the cost of living.
Last month Vice President Kamala Harris unveiled parts of her economic agenda, proposing a ban on price gouging of groceries, suggesting corporate greed was fueling high prices.
Harris also proposed a $25,000 in down payment help for certain first-time homebuyers and a $6,000 tax credit for families with newborns.
Trump blasted Harris’ plan to ban price gouging as a “Communist plan.”
Trump has vowed to quickly bring down prices if he wins a second term in November, but has not outlined specifics.
Trump pledged that his Cabinet would lower inflation in the first 100 days of his second term.
Justin Wolfers, a professor of economics and public policy at the University of Michigan, noted that while Harris “has a plan, Trump doesn’t.”
“There is literally no detail on what policy levers Trump will pull to address the cost of living,” Wolfers told Newsweek. “Harris has detailed an approach.”
Earlier this year, the former president also pledged to end taxes on tips for workers as well as on Social Security payments.
Cooling inflation will be a relief to consumers who will see price rises slow down after a 9.1% inflation peak in mid-2022, the highest in four decades.
Monthly price growth from July to August was just 0.2%.
Core prices, which exclude food and energy and are a closely watched figure for economists, rose 3.2% year on year—0.3% in a month.
Gas prices were a key part in the fall in inflation in August, with prices falling by around 10 cents per gallon.
Economists expect slower rises in grocery and rent costs as the year continues.
Food prices remain 20% higher than pre-pandemic levels, but have remained stable over the past year.
Rent growth is also cooling, with the median rent rising just 0.9% in August, according to Redfin.
The government has only released data on rent from July, when rental costs were up 5.1%.
With inflation starting to be taken care of, Fed officials will turn their attention to bolstering the cooling job market.
Wage growth, a potential inflation driver, has slowed to 3.5% annually, down from 5% two years ago.
Consumer spending has powered the economy in recent years, but rising debt and credit delinquencies could force Americans to scale back, potentially leading to slower hiring or job cuts.
This article includes reporting from The Associated Press