The inflation crisis appears to be over. What happens next?

Economic data released this week showed that inflation is continuing to cool, paving the way for the Federal Reserve to cut interest rates, which would ease the pressure on consumers and businesses from high borrowing costs.

According to the Consumer Price Index (CPI) report for July released on Wednesday, the overall year-on-year inflation rate fell to 2.9%, lower than any month since March 2021. The CPI reflects the change in the prices of representative goods and services purchased by consumers compared with the same period last year and is considered a standard measure of inflation. Although the report found Child Care and Renting Continuing to rise at a faster rate than overall prices, inflation has fallen significantly since its peak of 9.1% in June 2022 and is now inching closer to the Federal Reserve’s 2% target rate. Without rental inflation, overall inflation would be below the 2% target.

Tuesday was another bright day for data, with the latest Producer Price Index report, which measures changes in the prices of goods and services that producers sell to retailers, showing wholesale inflation also fell to 0.1%, matching pre-pandemic lows. High wholesale inflation can sometimes mean higher prices for consumers as retailers have to recoup higher costs.

The figures suggest that consumer economic conditions have improved, but the overall picture is certainly not perfect. The U.S. 114,000 jobs In July, the number of unemployed people in the United States was about 150,000 lower than expected, and the unemployment rate rose to 4.3% – higher than any month since October 2021.

The numbers themselves don’t necessarily represent a crisis: Unemployment remains relatively low and hiring is not severe, but both are seen as signs that cracks may be appearing in the U.S. economy.

This week’s news has many economists and financial experts arguing that it’s time for the Federal Reserve — the steward of the U.S. economy responsible for setting interest rates, managing the money supply and purchasing assets — to cut rates.

“Today’s inflation data provides further support for the Fed’s aggressive rate cuts starting in September,” said Preston Caldwell, chief U.S. economist at Morningstar.

Lower interest rates will make it easier for consumers and businesses to repay debts and borrow money. This could ultimately improve employment and boost overall economic growth. But the extent to which lower interest rates will help the overall economy is uncertain.

Fed Chairman Jerome Powell has spent the last month making statements suggesting the Fed could cut rates at its Sept. 17 meeting, but has stopped short of a full commitment. “The overall sense of the committee is that … we are getting closer to the point where it would be appropriate to begin to reduce restrictions. We are not there yet,” he said Aug. 1. “We want to see more good data.”

Caldwell said Morningstar is forecasting a 0.25% rate cut in September, rather than the 0.5% expected by other analysts.

Given the disturbing employment data and Global stock markets briefly crashed The Fed is also pegged to trading activity in Japan. Both are seen as signs that the economy needs a little stimulus. But even lower interest rates may not immediately relieve existing pressures on the economy.

Financial analysts and consumers are increasingly concerned that a recession is coming. Caldwell said Morningstar predicts that economic activity will slow next year. Other analysts have warned that the U.S. economy could Seeing the decline Even without a formal recession – defined as two consecutive quarters of negative economic growth – the question is to what extent Fed policy can actually avoid it.

Consumer confidence also fell in July. 3 out of 5 Americans A recent survey from Affirm shows that people wrongly believe the U.S. is already in a recession.

Economic fundamentals remain relatively strong. As Matt Collier, an economist at Moody’s Analytics, said, Tell me recentlyHouseholds and businesses have handled their debts relatively well, and hiring has remained stable for much longer than most expected. But those struggling with inflation or looking for work in a tough market may take some time to feel the relief they seek.