In a significant development, the latest reading of the Personal Consumption Expenditures Price Index (PCE), the Federal Reserve's preferred inflation measure, has indicated that concerns of a lingering inflationary episode post-pandemic have been put to rest. This development has increased the likelihood of a rate cut by the Fed in September, barring any drastic changes in inflation data.

The PCE inflation for June stood at 0.1%, while core inflation, which excludes food and energy, was recorded at 0.2%. Over the past year, overall prices have risen by 2.5%, while core prices have increased by 2.6%.

Previously, officials were cautious due to a temporary slowdown in inflation during the summer of 2021. This led the Federal Reserve to believe that inflation was transitory and that there was no immediate need to tighten policy.

However, with half a year's worth of data now available, it has become evident that the inflation spike observed in Q1 2024 was merely a blip rather than a sustained trend.

The implications of this development are crucial, as futures markets are now indicating a high probability of a rate cut of at least a quarter-point in September. Additionally, there is even a 12% chance assigned to a half-point rate cut.

The significance of this possible rate cut lies in its potential to stimulate economic growth and provide relief to businesses and individuals alike. Lower interest rates make borrowing more affordable, encouraging investment and consumer spending.

The shift in inflation expectations and the looming possibility of a rate cut demonstrate the delicate balancing act that the Federal Reserve must navigate. The central bank aims to support economic recovery while keeping inflation in check to avoid any adverse effects on purchasing power and overall financial stability.

As we move forward, it will be essential to closely monitor future inflation data to ensure that the current downward trajectory is maintained. Any unexpected acceleration in prices could prompt a reevaluation of monetary policy decisions.

For now, however, the outlook appears positive, with experts suggesting that the monster of post-pandemic inflation has finally been vanquished.