How the Latest Inflation Data Could Shape Fed Policy

• Final inflation reading before the Federal Funds Rate announcement, providing valuable insights into ongoing inflation trends and potential market implications.
• CPI y/y: A steady decline in inflation, though it remains above the Federal Reserve’s 2% target.
• The continued decrease in inflation may boost the Fed's confidence in considering potential interest rate cuts.

On Wednesday, September 11, 2024, at 4:30 PM GMT+4 (Dubai Time), the Bureau of Labor Statistics will release key inflation figures, including the Core Consumer Price Index (CPI) month-over-month (m/m), CPI month-over-month, and CPI year-over-year (y/y). This data release will be the last inflation reading and comes exactly one week before the Federal Funds Rate announcement, offering fresh insights into inflation trends and potential market impacts. Let’s take a closer look at each inflation indicator in more detail.

Core CPI m/m Data

The market anticipates the Core CPI month-over-month, which tracks the price of consumer goods and services excluding food and energy, to hold steady at 0.2%, suggesting no increase in inflationary pressure. When we compare historical data, starting from January 11, 2024, when Core CPI m/m was at 0.3%, we can observe a gradual decline in inflation over the course of the year. This points to a steady easing of inflationary trends, as per analyst analysis.

CPI m/m Data

Additionally, the market expects the CPI month-over-month, which tracks the overall change in the price of goods and services purchased by consumers, to remain steady at 0.2%. This indicates no significant signs of inflationary pressure. Since the CPI m/m provides a short-term view of inflation, if the actual data meets or falls below the 0.2% forecast, it could potentially lead to a decline in the value of the U.S. Dollar when the news is released, as per analyst analysis.

CPI y/y Data

Lastly, the release of the CPI year-over-year (y/y), which gives a broader view of inflation, is forecasted to decline from 2.9% to 2.5%, signaling a continued easing of inflationary pressures. Historical data shows that on January 11, 2024, inflation stood at 3.4%, highlighting a significant decrease over time. Although inflation is still not near the Federal Reserve’s target of 2%, the trend suggests a gradual decline, bringing it closer to the desired level.

Conclusion

In conclusion, by combining all the anticipated inflation data (Core CPI m/m, CPI m/m, and CPI y/y) we can observe a clear trend of decreasing inflationary pressures. If the actual data comes in as expected or even lower, it could further confirm this downward trajectory, as per analyst analysis. This continued easing of inflation could increase confidence within the Federal Reserve to consider cutting interest rates in the future, as inflation moves closer to their target. The upcoming data release will provide critical insights for shaping future monetary policy decisions which will be taking place on September 18, 2024, at 10:00 PM, GMT+4 (Dubai Time).