New inflation data to show if cooling has continued

Fresh inflation data on Wednesday will show whether the US has extended a month-long run of progress in the fight to slow price rises.

The latest price reading is set to come days after a dramatic bout of market turbulence, triggered in part by heightened pessimism about the chances of a “soft landing,” in which the U.S. avoids a recession while inflation returns to normal levels.

The turmoil on Wall Street followed a weaker-than-expected jobs report that indicated the economy may be slowing faster than previously thought.

Economists expect prices to have risen 3 percent in July from a year ago. That figure would leave the inflation rate unchanged from June, but still well below the 3.5% annual rate recorded in March.

Inflation has cooled for four consecutive months, reversing a rise in prices that occurred in early 2024. Price increases have slowed significantly from a peak of more than 9%, but inflation remains one percentage point above the target rate of Fed of 2. %.

Since last year, the Federal Reserve has kept interest rates at their highest level in more than two decades. High borrowing costs for everything from mortgages to credit card loans have helped slow the economy and lower inflation, but the policy risks plunging the U.S. into a recession.

The odds of a rate cut at the Fed’s next meeting in September are almost certain, according to CME’s FedWatch tool, a gauge of market sentiment. Market watchers are roughly split down the middle on whether the Fed will impose the typical quarter-percentage-point cut or opt for a cut of more than half a point.

The Fed is guided by a dual mandate to keep inflation under control and maximize employment. In theory, low interest rates help stimulate economic activity and boost employment; high interest rates slow economic performance and ease inflation.

A month of good inflation news alongside bad unemployment news has prompted the Fed to pay extra attention to its goal of keeping Americans on the job, Fed Chairman Jerome Powell said last month.

“For a long time, since inflation arrived, it was right to focus mainly on inflation. But now that inflation is down and the job market has really cooled, we’ll be looking at both mandates. They are in much better balance,” Powell told a meeting of the Economic Club in Washington, DC

“That means if we were to see an unexpected weakening of the labor market, then that could also be a reason for us to react,” Powell added.

The weak jobs report released earlier this month appeared to align with the hypothetical situation described by Powell.

Speaking at a news conference in Washington, DC in late July ahead of the jobs report, Powell said the central bank could reduce interest rate cuts in September depending on economic performance.

“We haven’t made any decisions on future meetings, and that includes the September meeting,” Powell said. “We’re getting closer to the point where we’re going to cut our policy rate, but we’re not there yet.”