Is it finally time to cut?

The July consumer price index confirmed that the inflationary dragon has been subdued, with headline inflation dropping below three per cent to 2.9 per cent year-on-year for the first time since March 2021. Core inflation advanced by a modest 0.2 per cent month-on-month. The empirical barrier preventing the Federal Reserve from easing policy has completely collapsed.

The Easing Runway Opens

With inflation comfortably decelerating and the domestic labor market displaying undeniable signs of softening, the Fed’s dual mandate has finally re-balanced. The central bank is no longer fighting a one-sided war on prices; its primary responsibility is now preventing an unnecessary, self-inflicted recession. Jerome Powell has the green light to initiate the monetary easing cycle.

Headline inflation dropping below three per cent officially dismantled the Fed’s hawkish constraint, clearing the runway for an immediate and necessary start to interest rate cuts.