Fed Poised for Dovish Shift as CPI Data Shows Slower-than-Expected Inflation Decline

The long-awaited CPI data for July has been released, and it aligns closely with predictions from many analysts. U.S. consumer prices increased by less than expected on an annualized basis, with the CPI declining by 0.1%. June's inflation rate stood at 3%, while July's figure slightly decreased to 2.9%. Although many economists had anticipated that July’s numbers would match June’s, the slight drop suggests a cooling trend, albeit a modest one.

Some had expected a more significant decrease in CPI, particularly given the recent earnings reports from companies like Ford Motors, which have been struggling with reduced sales due to the ongoing impact of high interest rates. Several major banks have also voiced concerns that the U.S. economy might be on the brink of a recession, arguing that the Federal Reserve should have acted on rate cuts sooner.

Given this slight decrease in inflation on a month-to-month basis, it’s likely that the Federal Reserve will adopt a more dovish tone in its upcoming meeting. A 0.25% rate cut seems realistic as inflation cools, even if only at an arithmetic rate.

Please comment on what you think will be the Fed's decision on rates.

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