The Federal Reserve is poised to cut interest rates in mid-September, following a meeting next week where crucial economic data will be reviewed.

Investor sentiment has shifted significantly, with clients now fully anticipating a rate cut in September as the Fed prepares for its upcoming meeting.

Recent inflation data shows core inflation, which excludes food and energy, rose by 0.2% from May to June, maintaining a year-over-year increase of 2.6%.

The personal consumption expenditures (PCE) price index increased by 2.5% year-over-year through June, down slightly from 2.6% in May, indicating a cooling inflation environment.

Despite a 0.1% price increase from May to June, overall inflation has decreased from a peak of 7% in 2022, although everyday costs remain significantly higher than three years ago.

Fed Chair Jerome Powell expressed confidence that inflation is returning sustainably to the central bank's target level of 2%, based on the latest summer data.

There are growing calls for the Fed to reconsider its 'higher for longer' stance to avoid jeopardizing a soft landing for the U.S. economy.

Bank of America suggests that despite strong consumer spending and GDP growth, the Fed can afford to be patient and may initiate rate cuts in December, depending on forthcoming inflation and employment data.

The U.S. economy demonstrated robust growth, expanding at a 2.8% annual rate in the April-June quarter, driven by strong consumer and business spending.

Concerns about persistent inflation remain, influenced by factors such as labor market rigidity and housing supply constraints.

Lower interest rates combined with a solid job market could positively shape public perception of the economy ahead of the upcoming presidential race.