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Slowing Inflation Boosts Interest Rate Cut Hopes

Economic data due this week is expected to show that inflation is cooling further, thereby boosting hopes that the Federal Reserve will consider cutting interest rates in the coming months. The consumer price index (CPI) is expected to show that prices rose by 3.7% in January compared to the previous year, making for the smallest annual gain since April 2021.

Should this figure ring true, it would show the progress that the Federal Reserve has made in its fight against inflation. Overall CPI is expected to have risen by less than 3% for the first time in almost two years according to economists’ forecasts.

“In deciding when to start cutting rates, the Fed will have to reconcile the data they have in hand— which show inflation on a fast track to the 2% target—with risks that inflation could flare up again or the labor market could weaken more sharply,” Bloomberg Economics noted, adding that a final decision will most likely not be reached until shortly before the next policy meeting.

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