Monthly Economic Insights
Inflation continues to recede, GDP rises, but rate cut timing is still in question
by Marcus Scott, CFA, CFP®, Chief Investment Officer (CIO) for The Country Club Trust CompanyInflation in June rose 3 percent from a year ago, down from a 3.3% rate in May. After excluding food and fuel prices, the “core” price index rose by 3.3% compared to a year earlier, showing a decline from the previous report. Prices decreased by 0.1% monthly, with the core index rising only slightly.
This cooling inflation data indicates a meaningful slowdown in inflation, which is precisely what Fed officials have been hoping for as they consider cutting interest rates. The central bank has maintained borrowing costs at 5.3% for the past year to reduce the demand for big purchases like houses and cars.
However, this decline in inflation has spurred discussions among economists and investors
about the potential timing of interest rate cuts.
Despite the positive inflation data, Fed Chair Jerome Powell has remained non-committal about when the central bank might begin to lower interest rates. During a recent speech at the Economic Club of Washington, Powell refrained from giving clear signals, emphasizing that decisions will be based on incoming data rather than predetermined timelines.
Other good news that argues against an impending recession, though it may not convince the Fed to cut rates, is the most recent report from the Commerce Department showing that GDP rose at an annual rate of 2.8%. The second-quarter acceleration easily beat the 2.1% expected by economists. Current third-quarter Atlanta Fed GDPNow estimates stand at 2.8%.
On the labor front, recent figures show a cooling market as well, with a slight uptick in the unemployment rate, which rose to 4.1% in June from 3.4% in early 2023. Fed officials have highlighted the importance of closely monitoring employment trends to avoid over-tightening monetary policy, which could increase the risk of recession.
But Fed board members are sticking to the script of the importance of data over specific timelines. Some have even noted the need for continued caution due to the nuanced nature of current economic conditions, referring to atypical business cycles that have complicated economic predictions.
Supply chain disruptions, geopolitical tensions, and fluctuations in commodity prices continue to play major roles as well and have added layers of complexity to the Fed's policy decisions.
Bottom Line: While the exact timing of a rate cut remains uncertain, many economists and investors are looking to the Fed's September meeting as a potential inflection point. However, Powell and other Fed officials have indicated they will not rush into a decision. The focus remains on achieving a balance between controlling inflation and maintaining a robust job market.
In the big picture, as inflation gradually eases and the Fed takes a careful approach to interest rate cuts, everyone—consumers, investors, and employers—will need to stay on their toes in this dynamic dance with the economy, which continues to prioritize stability over scheduling.
![Marcus Scott photo](/images/uploads/a423316d-ce63-44a4-9571-f043265270ee.png)
— Marcus Scott, CFA, CFP®, Chief Investment Officer (CIO) for Country Club Trust Company
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