The Lombard Review
Economy

Is it finally time to cut?

Sub-3% inflation opens easing

A supermarket aisle in Vermont
A supermarket aisle in VermontPhoto: Tessa Bury / Wikimedia Commons, CC BY 4.0
1 min read Data: Jul CPI 2.9%

The July consumer price index confirmed that the inflationary dragon has been subdued, with headline inflation dropping below three per cent to 2.9 per cent year-on-year for the first time since March 2021. Core inflation advanced by a modest 0.2 per cent month-on-month. The empirical barrier preventing the Federal Reserve from easing policy has completely collapsed.

The north face of the Eccles Building, Washington
The north face of the Eccles Building, WashingtonPhoto: AgnosticPreachersKid / Wikimedia Commons, CC BY-SA 3.0

The Easing Runway Opens

With inflation comfortably decelerating and the domestic labor market displaying undeniable signs of softening, the Fed’s dual mandate has finally re-balanced. The central bank is no longer fighting a one-sided war on prices; its primary responsibility is now preventing an unnecessary, self-inflicted recession. Jerome Powell has the green light to initiate the monetary easing cycle.

The U.S. Capitol at night
The U.S. Capitol at nightPhoto: Diliff / Wikimedia Commons, Public domain

Headline inflation dropping below three per cent officially dismantled the Fed’s hawkish constraint, clearing the runway for an immediate and necessary start to interest rate cuts.