In July, US inflation fell to 2.9%, down from 3.0% in June. The trend is the same on the side of core inflation (excluding energy and food) which was 3.2% against 3.3% in June.
Taken together, these figures point to a gradual slowdown in inflation, driven by the decline in fuel and motor vehicle prices. Nevertheless, inflation is still far from the 2.0% target set by the US Federal Reserve. The reason for this is the still strong rise in the price of services (+4.9% year-on-year), which continues to be driven by wage increases.
At the same time, the US labour market had already shown signs of slowing. In July, the unemployment rate was 4.3% (compared to 4.1% in June) and job creation slowed sharply, with only 113000 jobs created in July.
Everything suggests that the US economy is experiencing the slowdown so desired by the Fed. While we believe it is well placed to achieve a soft landing, there is little doubt that the US monetary authorities have the necessary room at this stage to start lowering their policy rates, again in a gradual manner. Everything suggests that a 0.25% cut in the Fed’s key rates will be announced following the next monetary policy meeting on 18 September.
This should reassure investors who are waiting for such a move, which could make credit cheaper and give some air to the world’s first economy. But beware: at this point, investors expect to see eight US policy rate cuts over the next twelve months. A scenario that reminds us of the end of 2023, when six or seven were expected to decline for 2024.
In our view, such a rapid decline in key interest rates would be possible only if the economy were to face serious difficulties, which we do not expect. So rates should not be cut as quickly, simply because US economic activity should not need them.
We therefore continue to invest in the US (both in equity and bond markets) across all our portfolios.