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US Inflation Slows Slightly in May as Fed Prepares for Key Rate Decision

Published 13-06-2024, 09:15 am
© Reuters.

In a key development for the U.S. economy, the Bureau of Labor Statistics unveiled the Consumer Price Index (CPI) data for May 2024, signaling a slight easing in inflationary pressures. The CPI rose by 3.3% year-over-year, a modest deceleration from April's 3.4%, and below economists' expectations of steady inflation at 3.4%.

The monthly inflation rate remained flat at 0.0%, down from April's 0.3% and below the forecasted 0.1% increase. This cooling is primarily attributed to a drop in gasoline prices. Excluding volatile food and energy sectors, the core inflation rate climbed by 3.4% year-on-year, easing from April's 3.6% and falling short of the anticipated 3.5%. On a month-to-month basis, core inflation edged down to 0.2% from 0.3%, influenced by lower prices for airline fares, apparel, and new vehicles.

This data release comes just hours before the Federal Reserve's Federal Open Market Committee (FOMC) wraps up its two-day policy meeting, potentially impacting the central bank's future interest rate decisions. The FOMC is expected to keep the key federal funds rate within the 5.25% to 5.5% range, the highest in over two decades.

However, the softer inflation reading might influence the committee's rate path projections for the rest of 2024, especially as traders await the updated "dot plot," which outlines Fed officials' future rate predictions. In March, most policymakers anticipated two to three rate cuts this year, but the latest data could prompt consideration of more than one rate cut by year's end.

Investors and policymakers closely monitor the CPI as a crucial indicator of economic health. Despite a significant decline from its peak of 9.1% in June 2022 to 3.4% in April 2024, inflation remains a concern for the Federal Reserve. The average CPI over the past six to eight months has hovered around 3.2%. The Fed has made it clear that a rate cut will not be considered until inflation approaches the 2% target, which is essential for long-term economic stability.

As the FOMC meeting concludes and Fed Chair Jerome Powell prepares to address the media, all attention will be on the Fed's policy statement and any shifts in the economic outlook.

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