The rate statement began by noting that inflation has “fallen substantially” since 2022 and that inflation had fallen back within the target band of 2%-3% in the second quarter.
The Board noted that headline inflation was at 2.1% and trimmed mean (a key core CPI gauge) was at 2.7%. The Board said that underlying inflation is expected to continue to ease to the midpoint of the target band and the cash rate should continue to follow a “gradual easing path”.
This dovish tune in the statement was balanced out by concerns that uncertainty remains in both the global economy and at home. The Board said it would remain cautious and would remain focused on price stabililty and employment.
At a post-meeting press conference, Governor Bullock said that the growth and inflation forecasts support further rate cuts but “there is still a lot of uncertainty” and future rate decisions would be data-dependent.
US inflation expected to rise to 2.8%
The US releases the July inflation report later today. Inflation is expected to nudge higher to 2.8% y/y, up from 2.7% y/y in June. This would mark a third straight acceleration and the highest inflation level since February. Core CPI is also expected to accelerate to 3.0%, up from 2.9%
Monthly, CPI is projected to ease to 0.2% from 0.3%. Core CPI is projected to rise to 0.3% from 0.2%.
Today’s inflation data could shift market expectations for the September Fed meeting but the decision will very likely be rate cut, with a current likelihood of 84%, according to FedWatch’s CME.
