Economist declares 'Mission accomplished' as key metric indicates prices are returning to normal levels.

Some experts claim that inflation has been controlled after two years of interest rate increases.

The latest consumer price index report indicates that the rate of year-over-year price decline is 2.9%, measuring the cost of everyday goods and services.

Although rent, groceries, and services are still expensive, their prices are not increasing as rapidly as they did two years ago, when inflation hit a high of 9.1% in June 2022.

Despite not yet reaching the Federal Reserve's target rate of 2%, the current inflation rate is the lowest it has been since March 2021.

Julia Pollak, a labor economist at ZipRecruiter, suggests that the Fed should declare "mission accomplished" and start cutting interest rates in September.

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The central bank raised its effective benchmark rate from near zero to 5.33% through 11 consecutive interest rate hikes between March 2022 and July 2023 in an effort to combat inflation. Since then, the Fed has kept interest rates steady.

While hiking interest rates can help control inflation by making borrowing more expensive, it can also negatively impact economic growth, increase costs for consumers, and discourage business investment, resulting in fewer jobs and slower hiring.

According to Pollak, if the Fed maintains its current interest rate levels, the labor market will remain sluggish. It is predicted that a rate cut of at least 25 basis points will occur in September.

Why the report might be better than it looks

Nearly 90% of overall inflation can be attributed to the 0.4% increase in shelter costs last month, according to the latest report.

The CPI reports on shelter costs, but it takes a few months for changes in prices to reflect in the report, so current pricing may not be the most recent.

Although the increase in housing costs has affected people's finances, recent reports suggest that home and rent prices have stabilized, indicating that this trend may continue in the future.

According to Noah Yosif, chief economist at the American Staffing Association, recent data suggests that market rents are already in the process of normalization, meaning the CPI will continue to show disinflation in shelter costs even after the Fed makes its first cuts to the federal funds rate.

The persistent scarcity of homes has been the primary driver of rising housing costs, according to Pollak, who notes that they are "remarkably impervious to tight monetary policies."

She suggests that the Fed should take a step back and let the market and policymakers handle the ongoing issue of housing undersupply.

Pollak continues, stating that high interest rates have exacerbated the housing issue by trapping homeowners in their homes and motivating older Americans to remain in their current residences. Additionally, high rates discourage real estate investors from obtaining loans to finance the construction of new homes and apartments.

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