The US Federal Reserve has gained breathing room after official figures showed annual consumer price inflation slowed to 3.4 per cent in July.
The drop from 3.5 per cent in June suggests the central bank and its new chairman Kevin Warsh will keep US interest rates in the range of 3.5 per cent to 3.75 per cent next month.
Holding borrowing costs steady would avert a potential political clash with Donald Trump, who has consistently argued for lower interest rates since becoming president.
The Federal Reserve serves as the central bank of the United States, setting monetary policy to maintain price stability and manage economic growth. US presidents closely monitor central bank rate decisions due to their widespread impact on borrowing costs for businesses and households.
Interest rate expectations
"No nasty surprises means Warsh can maintain his wait-and-see bias," said Matt Cornwell, a portfolio manager at Nedgroup Investments.
The inflation report followed news last week of surprise job losses in July. The data also suggested limited effects from an oil price shock sparked by ongoing conflict in the Middle East.
Geopolitical tension in key oil-producing regions frequently disrupts global energy markets, raising transport and fuel costs for consumers and threatening broader price increases across the economy.
Inflation target and economic outlook
Despite the cooling inflation figures, economists warned that an interest rate rise remains on the table because inflation continues to run above the Federal Reserve's 2 per cent target.
"The report should further ease the Fed's fears about an energy-driven inflation spiral," said Scott Anderson, chief US economist at BMO Capital Markets.
Anderson added: "The Fed will need to see more evidence that core services inflation is truly moderating before they take their rate hike threat completely off the table."
The central bank maintains an official annual inflation target of 2 per cent to ensure long-term currency stability. Core services inflation, which tracks price changes in service sectors while excluding volatile items like energy and food, remains a primary focus for central bank officials when evaluating underlying inflation trends.
