U.S. inflation picking up; Fed rate cut still expected

WASHINGTON (Reuters) – U.S. consumer prices increased broadly in July, but the signs of an acceleration in inflation will likely do little to change market expectations that the Federal Reserve will cut interest rates again next month amid worsening trade tensions.

FILE PHOTO: People shop at Macy’s Department store in New York City, U.S., March 11, 2019. REUTERS/Brendan McDermid

The report from the Labor Department on Tuesday, however, lowered the chances that the U.S. central bank would cut rates by half a percentage point at its Sept. 17-18 policy meeting.Financial markets have fully priced in a 25-basis-point reduction following a recent escalation in the bruising trade war between the United States and China, which sparked a stock market sell-off and caused an inversion of the U.S. Treasury yield curve, heightening the risk of a recession.

President Donald Trump announced last month an additional 10% tariff on $300 billion worth of Chinese imports starting Sept. 1. China let its currency, the yuan, slide past the key 7-per-dollar level to its lowest point since the 2008 global financial crisis before trying to stem the decline.

On Tuesday, the Trump administration delayed the imposition of the additional tariff on certain Chinese imports, including technology products and clothing, until mid-December.

Economists said the move still left a cloud over the U.S. economy. Fears about the impact of the trade fight on the economic expansion, the longest in history, prompted the Fed to cut its short-term lending rate by 25 basis points last month for the first time since 2008.

“The recent pickup in inflation won’t

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