Could a rate cut be on the way?
A key measure of US inflation favored by the Federal Reserve slowed in May, potentially opening the door to interest rate cuts in the second half of 2024.
Bureau of Economic Analysis data showed Friday that the core personal consumption expenditures price index, a gauge which does not include food and energy prices, increased by just 0.1% last month over April – its mildest jump for six months.
That trend emerged even as household spending ticked upwards, with incomes recording robust growth as hopes grew that consumers may not bear the brunt of an economic cooldown.
The Federal Reserve opted against lowering interest rates after its latest meeting, keeping its key rate unchanged yet again and citing lingering inflation as a key reason behind that decision.
However, Friday’s positive news on that front saw traders’ expectations swing toward a possible rate cut by the Fed in September, even though the central bank also suggested in the so-called “dot plot” accompanying its last statement that just one cut was likely before the end of the year.
Goods prices were down by 0.4%, according to the new government data, with recreational goods and vehicles also seeing prices cool and the cost of vehicles, durable household equipment, and furnishings ticking lower.
The Fed’s flurry of interest rate hikes throughout 2022 and 2023 saw its key rate jump by 525 basis points, helping contribute to a gradual economic slowdown even despite some resilience in the first six months of this year.
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