U.S. Inflation Falls To 3%, But The Fed Still Isn’t Done

Last month, US inflation fell substantially, reviving hopes that the Federal Reserve may soon complete the most aggressive interest-rate hiking cycle in decades.


According to data released by the Bureau of Labour Statistics, the consumer price index grew 3% from a year ago, the smallest increase in more than two years. Excluding food and energy, the core CPI, which economists consider to be a better predictor of underlying inflation, rose 4.8%. This was its slowest rate since 2021.


The data also indicated that, excluding housing and energy, a major services category carefully studied by Fed officials when assessing the nation's inflation trajectory was barely changed in June from the previous month. It has slowed to a 4% increase from a year ago, the weakest increase since late 2021. However, the Fed calculates this using a distinct index.




Source: Bureau of Labor Statistics, Bloomberg



According to Bloomberg Economists, slowing US inflation statistics for June could represent a potential turning point for policymakers in the coming months as the Federal Reserve seeks to reduce price hikes back to its 2% target.


While inflation is slowing, core inflation is still rising at a rate that leaves the Federal Reserve on track to resume interest-rate hikes this month. Even a 5% year-on-year increase in core inflation would be more than twice the Fed's target for total price increases.


Three Federal Reserve officials said on Monday that policymakers would need to raise interest rates further this year. In June, the Fed held interest rates constant after rising them for ten consecutive meetings to a range of 5% to 5.25%. According to predictions provided following their June meeting, most officials anticipate raising rates by another half percentage point before the end of the year.


The FOMC next meets July 25th - 26th and is widely expected by the market to resume rate increases.




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