A moderation in the inflation rate in July is encouraging. The Fed has slightly stronger case to keep interest rates steady, rather than recognizing the need to raise interest rates in September. A 2.9 percent decline in energy prices, resulting from on-and-off peace negotiations in the Middle East is responsible for part of the modest increase.
The better news was core prices, excluding food and energy, were up only 0.2 percent from June. The controlled rise is creating optimism that broader price pressures are slowing. For the 12-month period, inflation is up 3.4 percent, down slightly from 3.5 percent in June, while core inflation is down to 2.5 percent from 2.6 percent from June. The monthly increase is tied with February 2026 as the lowest recorded since 2021.
After the data release, the likelihood of rates remaining steady in September grew to 60 percent from a reading of 53 percent earlier in the week. The FOMC will receive the August employment and inflation numbers before they meet again on September15-16.