**Cooling Inflation Trends Point to Further Fed Rate Cuts**

WASHINGTON (AP) - Indicators from the Federal Reserve's preferred inflation gauge are suggesting that price pressures are diminishing, paving the way for anticipated interest rate cuts by the Fed in the upcoming months. The Commerce Department reported a moderate 0.1% rise in prices from July to August, compared to the 0.2% increase in the prior month. Annual inflation also saw a decline to 2.2% from 2.5% in July, edging closer to the Fed's 2% target.

The easing inflation might be influencing former President Donald Trump's economic polling advantage. A recent survey by The Associated Press-NORC Center for Public Affairs Research revealed that respondents are nearly evenly divided on whether Trump or Vice President Kamala Harris would better manage the economy. This marks a shift from the period when President Joe Biden was still a candidate, as a majority of Americans then disapproved of his economic policies.

Grocery prices remained relatively stable last month, and energy costs fell by 0.8%, driven primarily by reductions in gasoline prices. Excluding food and energy, core prices showed a minimal 0.1% increase from July to August, consistent with the overall trend that has kept monthly price increases below the Fed's 2% annual target for the fourth consecutive time. Core prices, however, rose 2.7% compared to a year earlier, slightly up from July.

"Sticky inflation is yesterday's problem," commented Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, in a research note. In response to the significant drop in inflation from its 2022 peak, the Fed recently slashed its benchmark interest rate by half a point—a considerable shift after more than two years of elevated rates. Additionally, policymakers are looking at another half-point reduction in November and December, with further cuts expected in 2025 and 2026.

Adding to this cautious optimism, Tom Barkin, president of the Federal Reserve Bank of Richmond, expressed support for a cautious reduction in rates while ensuring inflation continues to cool. In an interview with The Associated Press, Barkin emphasized the importance of confirming a downward inflation trend before the Fed's benchmark rate is adjusted to levels that no longer restrict economic activity.

Furthermore, Friday's report highlighted a slight uptick of 0.2% in both Americans' incomes and spending last month. However, revised data suggests consumers were financially healthier last year than initially believed, and the savings rate rose to 4.8% in September, compared to previous reports of it falling below 3%. Additionally, the U.S. economy grew at an impressive 3% annual pace in the April-June quarter, fueled by robust consumer spending and business investments.

The Fed's favored inflation measure, the personal consumption expenditures price index, provides a comprehensive view of consumer spending by accounting for changes in shopping habits in response to inflation. In contrast to the better-known consumer price index, the PCE index typically indicates a lower inflation rate, partly due to its different weighting of components like rent.

Recent economic reports have been generally positive. For instance, the number of unemployment claims recently hit a four-month low, consumer spending at retailers has increased, and industrial production has rebounded. Plus, single-family home construction has surged compared to last year, and consumer sentiment has improved for three straight months, driven by perceived favorable prices on durable goods such as cars, appliances, and furniture.