Will the Fed now hit pause on rate hikes?
The US’s annual inflation rate cooled to 4% in May, its lowest 12-month figure since March 2021, as consumer price growth slowed noticeably from the prior month.
Bureau of Labor Statistics data showed that on a monthly basis, consumer prices were up just 0.1% between April and May, with the yearly figure well below the 4.9% annual increase registered in April – but some measures of price pressure stayed resiliently high.
Gas prices continued to plummet, falling by 20% from the same time last year, while food inflation moderated to 6.7% and ticked slightly upwards by 0.2% on a monthly basis.
The new data arrives ahead of the Federal Reserve’s next announcement on its key rate, scheduled to take place tomorrow (June 14), with the continuing downward trend arguably giving the central bank further room to hit pause on its rate-hiking trajectory.
Still, the core CPI (consumer price index) – a measure the Fed follows closely – continued to tick upwards, rising by 0.4% on a monthly seasonally adjusted basis for the third month in a row.
That gauge measures the changes in the price of goods and services without taking food and energy into consideration.
Nonetheless, the Fed is widely expected to leave its key rate unchanged tomorrow, having already introduced hikes at 10 consecutive meetings. The central bank’s chairman Jerome Powell has recently signalled his preference to skip a June increase and wait for July data before deciding whether a further move is needed.
