Inflation in the US falls below 3%, interest rate cuts are the harbingers

What happened

U.S. consumer prices rose a modest 0.2 percent in June and 2.9 percent year-on-year, the U.S. Labor Department said this week. It was the first time since March 2021 that inflation, as measured by the Consumer Price Index (CPI), fell below 3 percent, cementing expectations that the Federal Reserve will finally cut interest rates in September.

Who said what

This was the third month in a row that prices fell, making it the “clearest indication yet that inflation is returning from its 40-year high to normal levels — without a recession,” according to the Washington Post. A 0.4% increase in housing costs accounted for 90% of the overall price increase, but gas prices are lower than a year ago and overall, “families and households are feeling long-awaited relief from price increases.”

“It's a reassuring report, both because it's moving in the right direction and because it doesn't contain anything too dramatic,” Tara Sinclair, an economist at George Washington University, told the Associated Press. Investors, the Wall Street Journal said, “have already put their worries about inflation behind them and are now worried about the labor market.”

What happens next?