Federal Reserve Considers Cutting Interest Rates as Inflation Reaches 3-Year Low

The Federal Reserve could soon start cutting interest rates after inflation hits its lowest rate in three years.

According to the Consumer Price Index Report for August, the annual inflation rate has fallen to 2.5%---the lowest it has been since February of 2021.

"It's actually a very good report," said Dr. Ken Louie, director of the Economic Research Institute of Erie at Penn State Behrend. "It brings us closer and closer to the Feds target of 2% rate of inflation. Two and a half years ago, it was at 9%, so things are moving in the right direction."

Many economists expected the decrease, due to falling gas prices which are down by more than 10 percent compared to this time last year.

Meanwhile, food prices remain steady, rising just 0.1 percent.

"Food prices are moderating in terms of their rate of inflation," said Dr. Louie. "What that means, is prices are still rising but at a much slower pace. It doesn't really mean that prices are coming down necessarily."

According to the Bureau of Labor Statistics, the leading driver of inflation continues to be the housing market.

The shelter index rose 0.5 percent for the month of August, and is up more than five percent from 2023.

"Housing in particular has been an issue that has been on the forefront of discussion, especially with the upcoming presidential election, " said Dr. Louie. "That will be a challenge for a while as to how we can lower the cost of housing."

The Federal Reserve could begin cutting interest rates, when it meets next Wednesday.

"These reports, since they just came out, probably are just the beginning point of the process," said Dr. Louie. "Eventually we will feel it as consumers, but it may take a little while before we actually see the mitigation."