US inflation cooled significantly, boding well for the Fed’s ‘soft landing’ plan

Inflation cooled more than expected in August, inspiring confidence that the US Federal Reserve is bringing the economy in for a so-called soft landing — slowing inflation without stifling hiring.

Consumer prices, the Fed’s preferred inflation measure, rose 2.2% year-over-year in August, compared to 2.5% in July and below the 2.3% economists expected. It’s the lowest inflation reading since February 2021, according to the Personal Consumption Expenditures price index, released Friday by the Bureau of Economic Analysis.

At the central bank’s September meeting, where it cut interest rates by half of a percentage point, chair Jerome Powell stopped short of claiming victory on inflation but noted the Fed’s “greater confidence” that it was easing close to its 2% goal. Michael Pearce, economist at Oxford Economics, told Semafor that he anticipates inflation will hit that target in September.

“We’ve come on a string of pretty good inflation readings over the last several months, and that was coming after an acceleration in inflation in the first quarter,” PIMCO economist Tiffany Wilding told Yahoo Finance. “So I think Fed officials are feeling pretty good about where inflation is sitting.”

The Dow Jones Industrial Average, Nasdaq, and S&P 500 all ticked up less than 1% following the announcement.