Inflationary Pressure Persists: Fed Faces Challenges

The debate on inflation in the US remains a focal point in the financial world even after the Federal Reserve's recent interest rate cut. An upcoming report might indicate that efforts to combat inflation are far from complete. According to a survey of economists conducted by Dow Jones Newswires and The Wall Street Journal, the Personal Consumption Expenditures Index for August is expected to show a price increase of 2.7% compared to the previous year, up from 2.6% in July. This would mark the fourth consecutive month of increasing inflationary pressure in this area. The so-called core inflation, which excludes volatile prices like food and energy, is particularly in focus. Here, an increase of 2.9% is expected, which continues the trend of the last three months. Some forecasts even suggest reaching the 3% mark, which has not been recorded since early 2024. These developments contrast with the Fed's inflation target of 2% per year. Senior Fed officials have acknowledged a persistently elevated level of inflation continuing this year. Measures from the previous administration, such as President Trump's tariffs, are also cited as price-driving factors. Despite concerns about inflation, the Fed's board unanimously decided on a rate cut to support the labor market situation. However, there could be a sigh of relief from the indication by Jim Reid, head of macro and thematic research at Deutsche Bank. He forecasts that the rise in inflation could be less than initially feared, partly due to lower wholesale prices that factor into the PCE calculation. This suggests a less drastic, yet still elevated, inflation rate.