The latest data on inflation in the United States as of September 2024 reveals a nuanced picture. The overall inflation rate has slightly decreased from 2.5% to 2.4%, which is the lowest level in three and a half years. This brings the inflation rate closer to the Federal Reserve's target of 2%. However, the core inflation rate, which excludes energy and food, has increased from 3.2% to 3.3%. This divergence presents challenges for policymakers as they navigate the economic landscape.
Despite the overall decrease in inflation, the core inflation rate has increased, surpassing expectations. Prices have risen by 0.2% compared to August. The primary driver behind the falling inflation rate has been a significant drop in energy prices. On the other hand, food prices have started to climb again, reflecting a higher rate than the previous month and the same period last year. This mixed performance in price trends complicates the Federal Reserve's approach to monetary policy.
One of the factors contributing to the core inflation rate is the continued rise in rents and imputed own rents. Rents have increased by 4.8% year-on-year, while imputed own rents have increased by 5.2%. Although these figures are lower than the increases observed in the first half of 2023, they remain concerning. The persistent rise in rental costs is a significant factor behind the elevated core inflation rate.
The Federal Reserve is dissatisfied with the core inflation rate and is cautious in its approach. While the overall inflation rate suggests potential room for interest rate cuts, the stubbornness of the core inflation rate requires a more cautious approach. The Fed's key interest rate range stands at 4.75% to 5%, and while a substantial cut could be feasible, the central bank is likely to proceed with caution given the ongoing inflationary pressures.
As the Federal Reserve considers its next moves, the possibility of an interest rate cut in November is uncertain. The recent rise in the core inflation rate complicates the decision-making process. While there is still an expectation for rate cuts in the remaining interest rate meetings this year, the implications of core inflation trends need to be carefully weighed.
Discussions within the Federal Open Market Committee will focus on whether a further rate cut in November is prudent. The Fed's cautious approach reflects the delicate balance it must strike between fostering economic growth and controlling inflation. The central bank's decisions will be closely monitored by market participants and analysts as they seek to understand the implications for both traditional finance and the cryptocurrency sector.