Inflation in the U.S. dropped to its lowest level in over three years, with the Federal Reserve’s preferred gauge showing a 2.1% annual increase in September 2024, down from 2.3% in August, aligning closer to the Fed’s 2% target. Core inflation, excluding food and energy, held steady at 2.7%. This slowdown follows aggressive rate hikes by the Fed, which raised its key rate to a 23-year high in 2023 to curb inflation that peaked at 7.1% in 2022. Despite the cooling, consumers remain cautious. High prices for essentials like gas (up 1.7% monthly) and groceries continue to strain budgets, with overall prices still 20% higher than three years ago. Public sentiment reflects unease, with only 27% of Americans in a September AP-NORC poll viewing the economy positively, down from 30% in August. Political divides are stark: 48% of Republicans see the economy as good, compared to just 13% of Democrats. Holiday spending forecasts are mixed. The National Retail Federation predicts a 2.5% to 3.5% rise in sales, potentially the slowest in six years, while Deloitte projects up to 9% growth, driven by wealthier households. Lower-income consumers, hit hardest by inflation, are cutting back, with 54% planning to spend less, per an AP-NORC poll. Retailers like Walmart and Target are slashing prices to attract shoppers. Economic growth remains solid, with 2.5% annualized GDP growth in Q3 2024, and unemployment is low at 4.1%. However, consumer spending growth slowed to 3.7% from 4.1%. The Fed is expected to cut rates again in November, potentially by a quarter-point, after a half-point cut in September, signaling confidence in inflation’s decline but caution on economic momentum.