WASHINGTON (AP) — Inflation in the United States may have hit a three-year low in August, underscoring that the rate of price increases is falling back to pre-pandemic levels and clearing the way for the Federal Reserve to start cutting its key interest rate next week.
Year-over-year inflation is thought to have slowed to 2.6% last month, according to a survey of economists by the data provider FactSet. That would be the lowest such rate since March 2021.
And excluding volatile food and energy prices, core inflation is believed to have remained unchanged at 3.2%.
Inflation peaked at 9.1% in June 2022 — a four-decade high — as the economy rebounded from the pandemic recession with unexpected speed and strength. The Fed responded with 11 rate hikes in 2022 and 2023, raising its key rate to a 23-year high and making loans much more expensive across the economy.
The latest inflation figures could inject themselves into the presidential race in its final weeks. Former President Donald Trump has heaped blame on Vice President Kamala Harris for the jump in inflation, which erupted in early 2021 as global supply chains seized up, causing severe shortages of parts and labor.
Harris has proposed subsidies for home buyers and builders in an effort to ease housing costs and supports a federal ban on price-gouging for groceries. Trump has said he would boost energy production to try to reduce overall inflation.
“We do not seek or welcome further cooling in labor market conditions,” Powell said.
The Fed is widely expected to cut its benchmark rate by a modest quarter-point next week, though it’s possible that its policymakers could instead decide that a half-point reduction is needed. Wall Street traders envision a half-point rate cut at the Fed’s subsequent meeting in November, according to futures prices.