The Financial Crisis: Slowing Inflation Opens the Door For Fed to Cut Interest Rates Further
With U.S. consumer price inflation receding, the Federal Reserve has additional leeway to reduce interest rates further in the weeks ahead, though Fed officials currently don't see more rate cuts as a clear choice.</br></br>The U.S. consumer-price index was unchanged in September, the Labor Department said Thursday, after falling in August for the first time in almost two years. Excluding volatile food and energy prices, so- called core consumer prices -- which are believed to give a more stable reading of inflation -- advanced just 0.1% last month. And the year-over-year rate of inflation, at 4.9%, is coming down from high levels reached this summer.</br></br>There was widespread softness in pricing. Transportation prices fell 0.6% as airline fares and new-car prices dropped. Housing, which accounts for 40% of the consumer-price index, fell 0.1% for a second straight month, the first back-to-back declines since 2001. Clothing prices fell 0.1% for the month.</br></br>Other signs of economic weakness are building, including a report by the Fed on Thursday that U.S. industrial production dropped sharply in September.</br></br>The inflation readings underscore a growing belief inside the Fed that inflation pressures are easing, as many senior officials expected earlier this year. Indeed, financial shocks like the one the U.S. is experiencing could eventually lead to the opposite of inflation -- deflation, or a broad decline in prices -- though that doesn't look like a serious risk, given the amount of stimulus going into the U.S. economy.