US: Fed Cuts Interest Rates and CPI Ticked down marginally in August

US consumer price inflation rose 0.1 percent M-o-M in August in line with market expectations, however, lower than 0.3 percent M-o-M increase in July 2019. With falling energy costs, particularly gasoline for third month out of the past four months, overall inflation softened to 1.7 percent Y-o-Y in August from 1.8 percent Y-o-Y in July 2019.

  • Core inflation that excludes volatile items such as food and energy grew 0.3 percent M-o-M and 2.4 percent Y-o-Y in August compared to 2.2 percent in July. The core inflation ticked up due to a sharp price jump in medical care services.
  • Food inflation rose 1.7 percent Y-o-Y in August as compared to 1.8 percent in July 2019, whereas energy prices declined 4.4 percent Y-o-Y in August compared to a contraction of 2 percent in July 2019.
  • The import tariff on China’s exports to the US is likely to push the inflation up in the coming months.

Fed makes second rate cut in a row:

Despite the favorable U.S. economic outlook with strong labour market-low unemployment and wage growth, FOMC cut the rate by 25bps due to concerns over weak global growth and unresolved trade tensions. The benchmark Fed Funds Target Rate stands in the range of 1.75 to 2 percent.

The FOMC also cut its interest rate paid on overnight excess reserves by 30 bps to 1.80 percent to foster trading in the federal funds market.

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