For the sixth consecutive month the latest data has confirmed inflation has fallen to its lowest level in more than a year with a drop from 7.1% to 6.5% in headline inflation. While this a relief from the 9.1% headline inflation rate in June, it’s still not quite at the Fed’s target level rate of 2%. In an effort to return the inflation rate to the 2% target considered to be a healthy rate, the US central bank has responded by raising interest rates at the fastest pace in decades. Raising borrowing costs, the Federal Reserve expects to dampen the demand for expensive items such as homes and cars to help slow the economy and ease the pressures pushing up prices. Federal Reserve chairman Jerome Powell stated last month that the bank would start to move less aggressively to see how the moves are playing out in the economy, however, this slowdown from higher rates risk tipping the world’s largest economy into a recession. Seema Shah, chief global strategist at Principal Asset Management, said “Taking a step back, evidence is building that inflation is cooling and will continue to do so over the coming months. But perhaps the real question will come in late Q2 as inflation tries to move below the 4-4.5% handle. If it plateaus there, then the Fed will have very little space to cut rates this year and markets will face renewed challenges.”
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