Inflation in the US looks set to become old news as the rise in US Federal Reserve (Fed, central bank) rates draws to a close – from zero to over 5.25% in 18 months. Indeed, July's consumer price index rose by 3.2% year-on-year, according to statistics released on Thursday, August 10. It's a figure slightly up from the 3% posted in June, but still below expectations.

Above all, the interest lies elsewhere. Month-on-month, inflation has risen by just 0.2% (around 2.4% on an annual basis), whether for the overall index or excluding energy and food. This phenomenon has been evident for two months, suggesting that rising prices are close to the Fed's target of 2% on an annual basis.

The majority of this increase is attributable to housing, with rents being slow to come down despite the rise in interest rates that shattered the property market. Prices of services had soared wildly but are now calming down. Airline tickets for example, which had become prohibitively high in price, have fallen by 18.6% over one year and 8.1% over one month.

This return to earth comes as the labor market settles down a little. The unemployment rate in the US is at 3.5% of the labor force and labor participation is rising. Wages have also risen over the year by 4.4%, a figure too high for the Fed. Still, the US economy created "only" 187,000 jobs in July, a sign that overheating is waning.

So, is everything all right? If it is, how do we explain the fact that the Fitch rating agency has downgraded the USA's AAA rating, 12 years after the downgrade adopted by Standard and Poor's in the wake of the great financial crisis? Unfair, cried the Americans, even though an armistice has been signed on this subject between the Democrats and Republicans until the elections.

"It's complete nonsense. And it's more likely to show that Fitch is irrelevant to investors [in assessing] US sovereign debt than to show [investors] anything about the US," said Harvard economist Jason Furman indignantly. His colleague Olivier Blanchard had a different view: "More than the level of debt or even debt servicing, what matters most for debt sustainability is whether or not the budget process is functional, whether it can adjust if the need arises. The US budget process is dysfunctional. Fitch's downgrade was reasonable." In short, just because we're getting used to Washington's psychodramas doesn't mean this attitude is acceptable.

Added to this is the problem of budget deficits. Joe Biden claims to be the president who has reduced them the most: they halved between 2021 and 2022 due to the end of Covid-19 measures. But all his decisions are increasing deficits, which are on the rise again and expected to climb from 5.5% to 6.5% of gross domestic product (GDP), or $1,700 billion (€1,545 billion), for the fiscal year ending September 30, according to the independent congressional assessment published in early August. It's an unsustainable pace for a healthy economy, which has managed to avoid the constantly-predicted recession. In particular, interest payments on the debt, representing 1.9% of GDP in 2022, could soar to 3.7% within 10 years, according to figures from the same congressional assessment.

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