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United States towards a rate cut in September

Inflation above target and political uncertainties drive caution from the US Federal Reserve

By EC Invest

US inflation was only up 3.0% in June, compared to 3.3% in May. The core index, which excludes energy and food, was up 3.3%, compared with 3.4% the previous month.

Investors eagerly awaited this figure, which reassures those who hope to see US key rates fall more than once in 2024. Indeed, a Fed that already lowered its key rates in September would have the time necessary to revise them further upwards at the end of the year.

With inflation still above the 2% target and the uncertainty of the November presidential election, the US Federal Reserve remains cautious. It expects to cut rates only once this year.

Investors pay attention to early signs of monetary ease ###

But investors are watching and reacting to the slightest sign of monetary easing a little more quickly. Following this figure, the rate on 10-year sovereign debt, which serves as a benchmark for the US debt market, fell from around 4.3% to 4.2%. The Japanese yen, which is severely undervalued because it suffers from the significant interest rate differential between US and Japanese debt (the Japanese 10-year is trading at less than 1.1%), has recovered.

If the US economy is holding up remarkably well and can cope with expensive credit without too much collateral damage, a cut in US rates would be good news for the private sector, making it easier for households and businesses to invest and consume. Therefore, even at all-time highs, the US stock market remains attractive. We continue to invest a portion of our diversified portfolios in these portfolios.

INFLATION IN THE UNITED STATES (Annual change, in %) ECI US RATE CUT GRAPHIC 920x320

The decline in inflation towards 3.0% reinforces the chances of a Fed rate cut in September and a 2nd cut before the end of the year — indeed good news for the American economy.

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