A cooler July inflation reading is likely to take expectations of a September rate hike off the table.
The Consumer Price Index on a core basis, excluding volatile food and energy prices, rose 2.5% last month, in line with expectations and down a tenth of a percentage point from June. Month over month, core CPI rose 0.2%, also in line with expectations. The Federal Reserve analyzes inflation on a core basis to get a more reliable reading on prices because energy and food prices can move around a lot.
The new CPI reading marks the second straight month that inflation has cooled. Core CPI was 2.6% for June, down from 2.9% in May. However, re-escalating tensions in Iran have led to volatile energy prices, which could still have implications for prices on a headline and core basis through the year.
The latest inflation prints also come after a weak reading on the job market that showed the economy lost 23,000 jobs in July.
Last week, Fed governor Lisa Cook, who favored holding rates steady at the Fed’s July meeting, said if she does not see signs of inflation coming down soon, she is prepared to act. But she noted that she would consider how raising rates would affect job market stability and that a rate hike may not be necessary because some disinflationary forces are already in play.
Cook is emblematic of the majority of the voting Federal Open Market Committee members who are content to hold rates steady for now. They included Fed Chairman Kevin Warsh, Fed Governors Michelle Bowman, Michael Barr, Jay Powell, Chris Waller, and Fed vice chair Philip Jefferson.
The latest inflation report might give them more reason to wait.
Three members dissented in July, preferring a small hike. Cleveland Fed President Beth Hammack was one. She told Yahoo Finance that she sees inflation as broad-based and that more than one rate increase will be needed to bring it down.
Traders are now betting on the Fed holding rates steady next month, with a 55% chance they hold rates steady, after bets had risen previously that the central bank could hike in September.
Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance, she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.