Inflation is going down. What does this mean for your budget and job prospects?
The consumer price index, a key inflation gauge, rose 2.9% in July from a year ago, the U.S. Department of Labor reported Wednesday. That figure is down from 3% in June and the lowest reading since March 2021
The July inflation reading is down significantly from the 9.1% pandemic-era peak in mid-2022, which was the highest level since 1981. Though the report found costs associated with child care and renting a home continue to rise at a higher rate than prices overall, inflation is now inching closer to the Fed’s 2% target rate.
Although a positive signal, consumer confidence also dipped in July, with 3 in 5 Americans believing the US is already in a recession. For those who are still feeling the impacts of inflation, unfortunately housing is still quite expensive and draining on working Americans’ budgets. The shelter index has risen 5.1% since July 2023.
This report has generated significant buzz because the U.S. Federal Reserve uses inflation data to help guide its interest rate policy. It raised rates to their highest level in 23 years during the Covid-19 pandemic era, primarily in an effort to tame inflation. Now, the question is whether it has been adequately tamed for the time being?
As we reported last week, recent labor market data, which shows a slow in hiring, signals to some experts that a U.S. recession may be near and it may be time for a rate cut. Easing inflation coupled with a cooler labor market make it likely that Fed officials will start cutting interest rates at their next policy meeting in September, economists said. Doing so would reduce borrowing costs, helping buoy the economy.
An interest rate cut would make it easier for consumers and businesses alike to pay off debt, including mortgages, and borrow money. That could eventually improve hiring and lead to overall economic growth. But there’s some uncertainty about just how much a rate cut would help the overall economy.
There is growing unease and uncertainyy, among both financial analysts and consumers, that a recession is on the horizon. Caldwell said Morningstar is projecting a deceleration in economic activity in the next year. Some other analysts warn that the US economy could see a downturn even without an official recession — which is defined as two straight quarters of negative economic growth. And there’s a question of how much Fed policy can actually avert that.
The outlook for the U.S. economy is more mixed than three months ago, according to 36 forecasters surveyed by the Federal Reserve Bank of Philadelphia. Overall, the forecasters revised upward their expectations for 2024 GDP growth on an annual-average over annual-average basis from 2.5% to 2.6%.
The forecasters see higher unemployment rates across all horizons compared with the previous survey. On an annual-average basis, the forecasters revised upward their expectations by 0.2 percentage point for both 2024 and 2025 to 4.1% and 4.3%, respectively.
We will continue to follow inflation, unemployment, and GDP growth closely. We hope to see greater job creation, particularly in sectors like manufacturing that pay a genuinely livable wage, even as prices continue to rise. The Fed’s decisions in the coming months will have direct impacts on our communities and businesses
