Could Slowing Inflation Indicate Further Fed Cuts?

Audio version available here (1 min. 45 sec.)

Now that the Federal Reserve has begun lowering interest rates for the first time since the pandemic, the nation is left wondering if more rate cuts will be coming in the near future. There are several indicators that could determine this, and if rates continue to come down, by what scale.

The Fed’s determination for September was a 0.5% rate slash that took many by surprise. With this ambitious scale down initiated, could this continue to be the trend later in the year? Based on recent data, economists are split on whether the Fed will once again take interest rates down by 0.5% or slow down to a 0.25% cut instead. Reports on unemployment and inflation have suggested the economy is not in as bad shape as originally thought, which could put a damper on the Fed’s eagerness to slash rates.

We previously reported that the Fed made the decision to lower interest rates despite not yet reaching their 2% target for inflation. In July, inflation over the last twelve months was 2.5%. Now that August’s report by the Personal Consumption Expenditures price index has shown that August’s inflation rate was 2.2%. This bodes well for consumers and businesses who have been financially challenged by rising prices. Another area of concern was unemployment. Many panicked when July’s report showed that unemployment had risen unexpectedly. The good news is that the weekly number of new unemployment claims has slowed down, meaning layoffs are decreasing.

All this can have a significant effect on the Federal Reserve’s decision to continue lowering interest rates. While economists are not concerned about the Fed keeping rates stagnant for the time being, there is contention on whether the next drop will be by 0.5% or 0.25%. Current analytics say there’s a 54% chance for a half-point drop versus a 46% chance for a quarter rate drop in November.

As the economy continues to shift and interest rates potentially come down, it’s vital for business owners to keep a close eye on the news. An easy way to do that is to follow XQ CPA’s social media for daily updates from our blog. If you seek more personalized financial advising for your business, feel free to reach out to us by phone or by scheduling a meeting at the link below. We are here for you.

Phone: 832-295-3353

Online Booking: https://xqcpa-bookme.acuityscheduling.com/schedule.php

Want the latest and greatest tax tips and business news? Stay up to date with our social media!

Our blog: https://www.xqcpahouston.com/blog

Our channel: https://youtube.com/@XQCPA

Facebook: https://www.facebook.com/XQCPA/

Instagram: https://www.instagram.com/tax_xqcpa/

Twitter: https://twitter.com/xqcpa

LinkedIn: https://www.linkedin.com/company/xq-cpa/

TikTok: https://www.tiktok.com/@xq.cpa

Sources:

https://www.cnn.com/2024/09/27/economy/us-pce-inflation-august/index.html