Inflation fell below 3% annually for the first time since March 2021, bolstering expectations that the Federal Reserve will cut interest rates in September.

U.S. prices rose 2.9% year-on-year in July, according to the latest Consumer Price Index data released today by the Bureau of Labor Statistics. Core inflation, which excludes volatile food and energy prices, rose 3.2% annually in July, the smallest increase since April 2021.

“Overall, this report suggests the worst of inflation may be behind us, giving the Fed room to consider cutting interest rates at its next meeting,” said Andrew Latham, a certified financial planner and managing editor of Supermoney.com.

If all goes as planned, the central bank’s interest rate cuts should reduce some stress on household budgets, help stimulate borrowing and encourage spending.

Will the Fed cut rates in September?

Most experts now expect the Fed to cut interest rates at its next meeting on September 17-18.

Fighting inflation has been the primary focus of the Fed, which has kept interest rates high to curb business and consumer activity. But a recent rise in unemployment has put pressure on the Fed to reverse course to avoid a recession.

“It’s time for the Federal Reserve to declare ‘mission accomplished’ in its war on inflation, stop fighting the economy and turn its focus to the employment part of its mandate,” Julia Pollak, chief economist at ZipRecruiter, told CNET via email.

After the Federal Open Market Committee meeting in July, which kept the federal funds rate at a target range of 5.25% to 5.50%, Fed Chairman Jerome Powell said a “rate cut could be on the table at the September meeting” if the data continues to show inflation is improving and the economy is slowing down. The Fed’s next decision could be influenced by two upcoming economic reports: Unemployment figures on September 6 and another inflation report on September 11.

Many economists are concerned that if the Fed keeps its foot on the brake pedal and does not cut interest rates soon, it will have negative effects on the labor market. “Unemployment will continue to rise, and businesses — unable to afford loans to finance new investments — will be forced to stagnate and let exciting growth opportunities pass them by,” Pollak said.

Most forecasts predict a rate cut of 25 basis points in September. But some argue that the Fed should go for a deeper cut, such as a reduction of 50 or 75 points, to avoid a cycle of job losses, according to Pollak.

What does lower inflation and interest rates mean for your money?

Interest rate adjustments can affect many aspects of your finances. Higher interest rates for borrowers make it more expensive to take out a mortgage and pay by credit card.

Read more: How the Federal Reserve Affects Mortgage Rates in 2024

Lower interest rates make it more affordable to borrow. But lower interest rates also mean reduced earnings on your savings. Now may be the last time to lock in the best rates on CDs, high-yield savings accounts and money market accounts.

Regardless of what happens on a macroeconomic level in the coming month, try to stick to practical financial advice from the experts. Starting an emergency fund and sticking to long-term investments can help you weather the ups and downs of the economy.

“While we should be cautious and prepared, now is not the time to hit the panic button,” Latham said.

Although prices are not as high as they were a few years ago, it is still difficult to afford daily necessities, such as gas and food, as well as housing. Check out these ways to save for some relief.