The latest US inflation figures are reinforcing market bets that the Federal Reserve will cut interest rates next month. 

The Personal Consumption Expenditures (PCE) Price Index rose 0.2% in July and 2.6% over the year, while the core measure increased 0.3% on the month and 2.9% year-on-year. Both results were in line with forecasts and confirm inflation is cooling gradually.

Markets immediately strengthened expectations that the Federal Open Market Committee (FOMC) will deliver a 25-basis-point cut at its September 16–17 meeting. Futures now imply an 85–90% probability of action.

Fed Chair Jerome Powell has already suggested the central bank is prepared to act, highlighting that risks to the labor market are becoming more pressing. Payroll growth has slowed to an average of 35,000 jobs a month since May, with unemployment at 4.2%. 

Governor Christopher Waller has openly called for a September move, with additional cuts in the following months if conditions persist.

Nigel Green, CEO of global financial advisory giant deVere Group, says: “Today’s inflation data reinforces the case for the Fed to begin easing in September. 

“With inflation on a steady downward trajectory, and with clear signs of a cooling labor market, the central bank has the scope to start reducing rates.

“We expect the Fed to cut by 25 basis points this month, but the bigger question is how far and how fast it continues. If jobs data remain weak, there is scope for three or even four cuts in the next 12 months.

“This pivot has major implications for investors. 

“The dollar is likely to soften, lifting risk-sensitive currencies and emerging market assets. Equities should benefit, though there will be volatility in the short term. Gold, already up more than 3% this month, will remain in demand as investors seek portfolio diversification. 

"Bitcoin and other digital assets are also set to gain as lower rates reduce the opportunity cost of holding non-yielding assets.”

The Fed faces political and economic pressures as it prepares its next move. 

President Trump’s attempt to dismiss Governor Lisa Cook has raised concerns about central bank independence, even though markets so far have taken the development in stride. At the same time, tariff-driven price increases are filtering through, leaving some policymakers wary of cutting too soon.

Nevertheless, most analysts now expect the Fed to prioritise employment stability. JPMorgan has shifted its forecast from one late-year move to four cuts starting in September, reflecting the rapidly changing outlook.

For global markets, the stakes are high. The dollar index is heading for its biggest monthly decline since April, equities have rallied through August, and US Treasury yields are drifting lower as investors position for a new phase of monetary policy.

Nigel Green concludes: “The Fed is about to pivot from holding the line to supporting growth. For many investors, this means a reallocation moment across asset classes.”