US CPI: US Inflation Drops to 2.5% in August. Fed Stays on Track for Interest Rate Cut.

Federal Reserve stays on track with latest data showing consumer price growth moderates further down toward the ideal 2% goal.

• Consumer inflation in the US USCPI slipped below expectations in August, hitting 2.5% against consensus calls for 2.6%. What’s more, it drifted substantially lower than July’s print of 2.9%, suggesting that stubborn price pressures might indeed be in the rearview mirror. The fresh readout solidifies the Federal Reserve’s intention to slash interest rates when officials get together next week.
• In this context, traders and investors now got a boost to their hopes of a bigger interest rate cut (and might be disappointed if they don’t get it). Previously, Wall Street expected a casual 25bps trim to borrowing costs before the nonfarm payrolls for August showed the US economy added fewer workers than expected. But with lowering inflation, a juicier 50bps cut might be on the Fed’s table. Or at least that’s what investors want.
• Reactions across the board: the US dollar strengthened against major peers. The EUR/USD pair slipped below $1.10 from a session high of $1.1060. The USD/JPY shot higher by about 1% from its 2024 low and the GBP/USD dropped 0.4% to $1.3050. Futures contracts tied to the major stock averages remained under pressure ahead of the opening bell after a mixed trading session on Tuesday.