Inflation

Inflation slows, putting pre-election rate cuts firmly on the table

The slowdown could provide ammunition for Democrats’ case that the economy is healthier than many voters believe.

By SAM SUTTON

Inflation slowed more than expected in June, boosting the odds that Federal Reserve Chair Jerome Powell and other central bank policymakers will move ahead with an interest rate cut before the November election.

Prices fell by a tenth of a percentage point last month — the first time that’s happened since the onset of the Covid-19 pandemic in early 2020, the Labor Department reported in the Consumer Price Index Thursday. Prices climbed by 3 percent on an annual basis, the lowest in a year. Critically, the prices consumers are paying for shelter — which includes rental payments that have been a driver of inflation over the last three years — are starting to rise at a much slower pace.

“Prices are falling for cars, appliances, and airfares, and grocery prices have fallen since the beginning of the year,” President Joe Biden said in a statement. But he added, “Prices are still too high. Big corporations making record profits need to do more to lower prices.”

The slowdown could provide ammunition for Democrats’ case that the economy is healthier than many voters believe. Taken with a recent labor market cooldown — which Powell said this week is not “a source of broad inflationary pressures for the economy” — it also provides the Fed with a strong case to lower interest rates at the central bank’s Sept. 17-18 meeting.

“The latest inflation numbers put us firmly on the path for a September Fed rate cut,” Seema Shah, chief global strategist at Principal Asset Management, said in a note. The report “surely gives the Fed confidence that [the first quarter’s] hot CPI readings were a bump in the road and builds momentum for multiple rate cuts this year.”

That would bring down borrowing costs for businesses and consumers. But it would also give the economy a lift shortly before voters head to the polls — a step that Republican lawmakers are urging Powell to avoid.

“I personally don’t think they should,” Sen. Kevin Cramer (R-N.D.) told POLITICO after Powell testified before the Senate Banking Committee on Tuesday. “I just think at this point, anything they do before November would be rightfully — would raise the question of their own independence.”