Federal Reserve Cuts Rates Amid Persistent Inflation and Rising Consumer Spending
The Federal Reserve reduced interest rates for the first time this year, despite August's core PCE inflation holding at 2.9% and overall PCE accelerating to 2.7%, as consumer spending increased.
Fed’s preferred inflation gauge rises 2.7% in August
New York Post
Key Inflation Indicator Ticks Up Again In August
Daily Caller
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Overview
- The Federal Reserve lowered its benchmark interest rate by a quarter point in August 2024, marking the first reduction this year, aiming to support a declining U.S. job market.
- The Fed's preferred inflation gauge, the personal consumption expenditures (PCE) price index, increased by 2.7% in August from a year earlier, showing a slight acceleration.
- Core PCE inflation, which excludes volatile food and energy prices, remained at 2.9% year-over-year in August, holding steady from July's figures.
- Annual price gains continue to stay above the central bank's 2% target, despite multiple rate hikes in 2022 and 2023 that had previously helped to decrease inflation.
- Consumer spending saw an increase in August, particularly in goods, while energy prices also rose, contributing to the monthly inflation figures.
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Analysis
Center-leaning sources cover this story neutrally, presenting economic data and the Fed's actions without overt bias. They focus on factual reporting of inflation figures, consumer spending, and income, alongside the Fed's rationale for rate adjustments. The inclusion of political context regarding Trump's pressure is presented as relevant background to the Fed's cautious stance, not as an editorial judgment.
"The Federal Reserve’s favored inflation gauge accelerated slightly in August from a year earlier."
ABC NewsArticles (6)
FAQ
The Federal Reserve cut interest rates by 25 basis points to support a weakening U.S. job market, as recent data showed slowing labor growth and a significant downward revision of prior nonfarm payrolls, despite inflation remaining above the Fed's 2% target.
Lowering the federal funds rate typically reduces borrowing costs for consumers on mortgages, car loans, and credit cards, making it more affordable to borrow and spend, which the Fed aims to stimulate economic activity and employment while preventing a recession.
The Fed's rate cuts can lead to lower yields on cash and short-term bonds, prompting investors to adjust portfolios by reducing cash holdings and considering longer-duration investments; markets may experience volatility and mixed signals about future rate paths.
Consumer spending, especially on goods, increased in August 2024, contributing to an acceleration in the overall personal consumption expenditures (PCE) inflation to 2.7%, which remains above the Fed's 2% target and affects their balance between curbing inflation and supporting the economy.
The Fed targets a 2% inflation rate, but recent data shows core PCE inflation holding steady at 2.9% year-over-year in August 2024, indicating that inflation remains persistently above the target despite previous rate hikes.
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