The Federal Reserve is expected to receive further confirmation of easing inflation trends this Wednesday when the government releases its latest report. Economists anticipate a modest 0.2% increase in consumer prices from June to July, slightly above the Fed’s 2% annual target. Year-over-year, inflation is projected to remain at 3%.

Excluding volatile food and energy costs, core prices are also anticipated to rise 0.2% from June and 3.2% from a year earlier. The gradual cooling of inflation in recent months has provided relief to consumers after the price spikes experienced over the past three years, notably in food, gas, and rent. Inflation had spiked to 9.1% two years ago, the highest level in four decades.

Inflation has been a significant topic in the presidential election, with former President Donald Trump attributing price spikes to the Biden administration’s energy policies. Vice President Kamala Harris has hinted at unveiling new strategies to reduce costs and strengthen the economy. Despite grocery prices remaining stable from June to July, food costs have increased by approximately 21% over the past three years.

Fed Chair Jerome Powell is waiting for further evidence of slowing inflation before considering a key interest rate cut, expected to occur in mid-September. The decrease in the benchmark rate tends to lower borrowing costs for consumers and businesses, with mortgage rates already declining in anticipation. Raphael Bostic of the Fed’s Atlanta branch has indicated that a rate cut is forthcoming, pending more data confirmation.

In the past two years, inflation has eased due to repaired global supply chains, cooling rental costs, and slowed auto sales attributed to higher interest rates. Consumers, especially lower-income individuals, are increasingly price-sensitive, leading companies to restrain price hikes or offer lower prices. Despite some service costs rising sharply, such as auto insurance and health care, economists foresee these costs growing more slowly over time.

The Fed is closely monitoring the job market as inflation declines, aiming to maintain price stability and maximum employment, as mandated by Congress. Recent reports showed a slower hiring rate in July, causing the unemployment rate to rise for the fourth consecutive month to 4.3%. Analysts now anticipate three quarter-point rate cuts at the Fed’s upcoming meetings to address the 23-year high benchmark rate of 5.3%.

However, the rise in the unemployment rate is primarily due to an influx of job-seekers, including new immigrants, who are still looking for work and classified as unemployed. This influx is viewed more positively than if it resulted from increased layoffs. Despite this, measures of job cuts remain low. Retail sales data expected to be released on Thursday will provide insights into consumer spending trends, which could impact businesses’ hiring decisions.