After three years, the US inflation rate is in the 2% range…the end of the war with inflation is in sight.

With decreasing inflation concerns, the market’s attention is shifting to how much the Federal Reserve (Fed) will cut interest rates rather than when they will start cutting them.

The US Labor Department announced on the 14th (local time) that the US Consumer Price Index (CPI) for July rose by 2.9% compared to the same month a year ago, an increase of 0.2% from the previous month.

Entering the 2% range with annual consumer price increases marks the first time in three years and four months since it hit 2.6% in March 2021, just before the escalation of price increases.

Excluding volatile energy and food, core CPI rose by 3.2% compared to the same month a year ago, and by 0.2% from the previous month.

The annual core CPI increase has been on a downward trend for four consecutive months since reaching 3.8% in March, dropping to its lowest level since April 2021.

The annual increase in the representative index fell below the experts’ forecast of 3.0% as all other major indices’ monthly and core index increases met expert expectations.

Used car prices fell by 1.5% compared to the previous month in June, followed by a 2.3% decrease in July, contributing to a moderation in consumer price increases.

Airfare also decreased by 1.6% from the previous month in July, leading to a moderation in consumer price increases following June.

On the other hand, housing prices, which account for 35% of the CPI weight and have a significant impact on CPI calculation, rose by 0.4% from the previous month, accounting for 90% of the month-over-month consumer price increases.

After falling in the previous months of May and June, energy prices remained stable in July.

As statistics showing a deterioration in US employment in July raised concerns about an economic downturn, the market expects the Fed to cut interest rates at the monetary policy meeting on September 17-18.

Moreover, with the confirmation of a continued slowdown in inflation in the July consumer price report, market attention is focusing on how much the Fed will lower interest rates.

Some on Wall Street are speculating that, in consideration of the risk of an economic slowdown, the Fed may opt for a ‘big cut’ (0.50% rate cut) rather than the usual 0.25% cut at the September meeting.

According to FedWatch on the Chicago Mercantile Exchange (CME), the interest rate futures market reflects a 58.5% probability of a 0.25% rate cut and a 41.5% probability of a 0.5% rate cut by the Fed at the September monetary policy meeting.