Federal Reserve Rate Cut Anticipated as Inflation Moderates and Job Market Softens

CoinDesk reports that the latest Consumer Price Index (CPI) data released on Wednesday suggests that inflation is easing, although it remains above the Federal Reserve’s 2% target. With the job market displaying clear signs of weakening, the probability of a rate cut in September has soared to nearly 95%.

June’s CPI report showed that prices cooled more than anticipated, boosting traders' confidence that the Fed could lower interest rates this year. Despite stronger-than-expected Producer Price Index (PPI) figures on Friday, optimism remains high, with CME’s Fed Watch tool indicating nearly 95% likelihood of a rate cut in September.

The Federal Reserve, which aims to maintain both price stability and full employment, may consider easing monetary policy if the job market continues to weaken before inflation returns to the 2% goal. June’s CPI revealed a 3% year-over-year inflation rate, and the U.S. unemployment rate has risen to 4.1% in June, up from 3.8% in March. John Leer of Morning Consult highlighted that while the labor market is cooling, it remains strong historically, making the Fed's achievement of a "soft landing" a challenging but notable accomplishment.

During his appearance on Capitol Hill, Fed Chair Jerome Powell acknowledged the slowing job market, noting it no longer significantly pressures inflation. Fitch Ratings' Olu Sonola suggested that the Fed might cut rates sooner due to the balanced risks between rising unemployment and inflation. However, Markus Thielen from 10x Research cautioned that rate cuts might not be as favorable for markets as some traders expect, as investors might move away from riskier assets like cryptocurrencies in favor of safer options.

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