Fed sound bite: July CPI clears the way for a September rate cut

“Fed sounding board” Nick Timiraos writes that July's CPI data clears the way for the Fed to begin cutting rates at its next meeting. With the labor market showing recent signs of potential weakness, the debate at the Fed's September meeting will focus on whether to cut rates the traditional way, by 25 basis points, or a larger 50 basis points. Inflation data released on Wednesday did not settle that debate. Instead, the debate is likely to hinge on labor market reports, including weekly initial jobless claims and the August nonfarm payrolls report, which will be released on September 6th. The inflation report released Wednesday was relatively modest, but a strong rise in housing costs could reduce enthusiasm for that data. Fed leaders have hinted, however, that they are prepared to start cutting interest rates next month, in part because the inflation data for May and June were also much milder.