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Inflation Drops to Lowest Point Since 2021

Latest data could signal end to rising interest rates from the Federal Reserve

U.S. inflation has reached its lowest point since the beginning of 2021.

According to the latest report from the Bureau of Labor Statistics, inflation is now hovering at just three percent, leading to speculation the Federal Reserve may halt increasing rates or possibly begin to lower its baseline interest rate.

A year ago, the U.S. inflation rate was around nine percent, a 40-year-high. Over the past two months, inflation has fallen from almost five percent, reflecting a drop in food and energy prices that surged following the White House’s energy policy and war in Ukraine.

U.S. stocks jumped after the report showing slowing inflation was released. The Dow Jones Industrial average rated 136 points higher, the S&P 500 increased 0.8 percent, and the Nasdaq rose 1.2 percent.

“There has been significant progress made on the inflation front, and today’s report confirmed that while most of the country is dealing with hotter temperatures outside, inflation is finally cooling,” George Mateyo, chief investment officer at Key Private Bank, said. “The Fed will embrace this report as validation that their policies are having the desired effect – inflation has fallen while growth has not yet stalled.”

Officials at the Fed could potentially hold off on a September rate hike, based on the better-than-expected data, according to the Associated Press (AP).

“It takes the second hike off the table, if that trend continues,” the AP quoted Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives, as saying. “They’re probably on hold for the rest of the year.”

Fed policymakers are still assessing “whether the cool-down is likely to be quick and complete,” the New York Times reported. The outlet added that they don’t want to allow price increases to hold at elevated levels for too long, because consumers and businesses could change behaviors in ways that makes rapid inflation a feature, rather than a bug, in the U.S. economy.

“Inflation is too high,” Thomas Barkin, the president of the Federal Reserve Bank of Richmond, said Wednesday in a speech in Maryland, according to Bloomberg. “If you back off too soon, inflation comes back strong, which then requires the Fed to do even more.”

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