Wholesale Prices Clear The Way For Fed Rate Cuts

The U.S. economy appears to have cleared the final hurdle for the Federal Reserve to start reducing interest rates next week with Thursday's data showing wholesale prices on target with projections.

The producer price index (PPI) rose by 0.2% in August, according to the latest data from the Bureau of Labor Statistics, in line with the expectations of Dow Jones analysts. Core PPI, excluding food and energy costs, rose by 0.3%, slightly higher than projections.

The prices wholesalers pay is cooling along with the prices consumers pay, as indicted by Wednesday's CPI rate of 2.5%. The Fed's target inflation rate of 2% appears to be within reach as the Fed plans to announce a decrease in the benchmark rate from 23-year high levels.

"With PPI basically repeating yesterday's CPI reading and jobless claims in line with expectations, the decks have been cleared for the Fed to kick off a rate-cutting cycle," Chris Larkin, managing director of trading and investing at E-Trade, told CNN.

The Fed raised the benchmark rate to 5.25% to 5.5% in an effort to bring down rampant inflation to its target rate of 2%. Inflation has gradually cooled to the point that the Fed plans to announce a reduction in the rate on Tuesday, followed by a series of cuts as the economy returns to normal.

"The markets are anticipating an initial [quarter-percent cut], but the discussion will soon turn to how far and fast the Fed is likely to trim rates over time," Larkin added.