Inflation rates falling

What has been a fairly stable inflation picture, with the annual change in living costs stuck in a range between 3.0% and 3.7% for more than a year, took an encouraging turn in June. Inflation as measured by the Consumer Price Index (CPI) was down for the month, and the inflation rate for the previous 12-month period dropped to 3.0%. That represents its lowest reading since June 2023, and continued a modest downward trend. “It appears the inflation environment is slowly improving,” says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. Markets pay close attention to inflation data to see if it may provide a green light for the Federal Reserve (Fed) to begin lowering the federal funds target interest rate it controls. “Fed officials have indicated that they need to see multiple months of improvement before cutting rates, so upcoming inflation readings will be important as well,” says Haworth. Inflation’s resurgence, beginning in 2021, was the impetus behind a significant change in Fed monetary policy. It prompted the Fed to raise the fed funds target rate from near 0% to a top level of 5.5%. The Fed has held rates at that level since July 2023. While markets anticipated the Fed would reverse course in 2024 and begin cutting rates, inflation’s decline flattened out beginning in mid-2023, and only recently began modestly trending lower.