Inflation decline: Is the market preparing for a new era?

US inflation has finally returned to the level that the Fed was aiming for. Nothing seems to stand in the way of a soft landing in the US. But things are different in Germany.

Recent developments in global financial markets point to a new interest rate turnaround that could have a lasting impact on the economic environment. The US Federal Reserve (Fed) is on the verge of cutting its key interest rates after the preferred inflation measure, the core personal consumption expenditures index (core PCE), rose by just 0.2 percent in July, bringing the inflation rate down to an annualized level of 1.8 percent. This is below the Fed's 2 percent target, which has been the benchmark for monetary policy decisions over the past two years.

This development could be the deciding factor that prompts the Fed to cut rates as early as its next meeting in September. While the short-term impact is still limited, a continuation of these trends could give the Fed more room to manage its rate cuts later in the year. This monetary policy flexibility could become especially important if new economic challenges emerge.

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