Behind This Week's Inflation Report

This week, markets swelled after a new inflation report highlighting important trends in the economy during the month of July.

The July PCE Inflation Report announced an easing inflation rate in the nation, with inflation increasing by 2.5% from last year's levels, a lower level compared to the expected increase of 2.6%. The general inflation index, when factoring out food and energy costs, grew by 2.6%, lower than the predicted 2.7%. Core PCE inflation dropped by 1.7% in the last three months.

These are very good signs for the economy. High interest rates implemented by the Fed have clearly been effective at reducing inflation, dropping it from its peak of 9.1% in 2022 to now 2.9% in July of 2024.

This is just as beneficial of results as the July CPI report, also showing slowing inflation growth.

Now, it is certain that the Fed has finally achieved its goals with high rates, and the time has come to cut rates. High rates have severely hurt companies' ability to obtain loans and thus use funds to expand and hire new employees, reducing GDP and stock market growth. However, if rates are cut, the economy will be able to grow at a significantly higher rate, combating growing unemployment, low business creation satisfaction, and helping companies prosper.

The markets have reacted in different ways on Friday following the report. The S&P 500 and Nasdaq indexes grew, while the Dow halted. This could be signs that rate cuts could benefit medium-sized companies far more than the top ten companies in the nation, for example.