Tue Aug 13, 2019, 01:59 PM

U.S. Inflation Accelerates; Fed Rate Cut Still Expected

Published : August 13, 2019 Updated : August 13, 2019
By Lucia Mutikani

WASHINGTON (Reuters) - U.S. consumer prices increased broadly in July, but the signs of an acceleration in inflation will likely do little to change market expectations that the Federal Reserve will cut interest rates again next month amid worsening trade tensions.

The report from the Labor Department on Tuesday could however, reduce the probability that the U.S. central bank will cut rates by half a percentage point at its Sept. 17-18 policy meeting.

Financial markets have fully priced in a 25-basis-point cut following a recent escalation in the bruising trade war between the United States and China, which sparked a stock market sell-off and caused an inversion of the U.S. Treasury yield curve, heightening the risk of a recession.

Fears about the impact of the trade tensions on the U.S. economic expansion, the longest in history, prompted the Fed to cut its short-term lending rate by 25 basis points last month for the first time since 2008.

"The recent pickup in inflation won't deter the Federal Reserve from cutting interest rates in September as the downside risks to the outlook from trade have become more threatening," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.


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