A key economic indicator from the Federal Reserve showed on Friday that inflation slowed in May to its lowest annual rate in more than three years.
According to statistics, the core personal consumption expenditures price index rose only 0.1% after seasonally adjustment in April, up 2.6% from the same period last year and down 0.2 percentage points from April. Ministry of Commerce Report.
Both figures were in line with Dow Jones estimates. Annual interest rates in May hit their lowest level since March 2021, marking the first time in this economic cycle that inflation has exceeded the Federal Reserve’s 2% target.
Includes food and energy, heading inflation It was flat month-on-month and increased by 2.6% year-on-year. These readings are also as expected.
“This is just additional news that monetary policy is working and inflation is gradually cooling,” San Francisco Fed President Mary Daly said on CNBC’s Andrew Ross Sorkin Conference. “scream box“Interview. “This is a relief for businesses and households that have been struggling with persistently high inflation. It’s good news for how policy works.
The Fed focused on the personal consumption expenditures (PCE) inflation data rather than the broader Labor Department’s Bureau of Labor Statistics consumer price index. PCE is a broader measure of inflation that can explain changes in consumer behavior, such as replacing their purchases when prices rise.
While the central bank officially focuses on headline personal consumption expenditures (PCE) data, officials generally emphasize the core data as a better indicator of longer-term inflation trends.
In addition to the inflation data, the Bureau of Economic Analysis reported that personal income grew by 0.5% this month, stronger than expectations of 0.4%. However, consumer spending grew 0.2%, missing expectations of 0.3%.
Prices were subdued as commodity prices fell 0.4% for the month, with energy prices falling 2.1%, offsetting a 0.2% rise in services prices and a 0.1% rise in food prices.
However, home prices continue to rise, rising 0.4% this month from the previous quarter for the fourth consecutive quarter. It turns out that the costs associated with housing are more United States Federal Reserve Officials have anticipated and helped prevent the central bank from cutting interest rates as expected this year.
in stock market futures U.S. Treasury yields rose modestly after the report was released, while U.S. Treasury yields turned negative during the session.
Investors have been trying to thwart the Fed’s interest rate intentions this year and have been forced to lower their expectations. Traders had expected at least six rate cuts this year at the start of 2024, but starting in September they now expect just two. Fed officials expected to cut interest rates only once this year at their June meeting.
“There were no surprises in today’s PCE data, which is a relief and will be welcomed by the Fed,” said Seema Shah, chief global strategist at Principal Asset Management. “However, the policy path is uncertain. “A further deceleration in inflation, ideally combined with more evidence of labor market weakness, would pave the way for a first rate cut in September.”
The Federal Reserve has an inflation target of 2% and will begin raising interest rates in March 2022. For the past year, the Federal Reserve has viewed price increases as a temporary impact of the COVID-19 epidemic that may gradually disappear. The central bank last raised interest rates in July 2023, when it raised benchmark overnight borrowing levels to a range of 5.25%-5.50%, the highest level in about 23 years.
Recent economic data paints a picture of an economy that has withstood the Federal Reserve’s aggressive monetary tightening. According to data from the Federal Reserve Bank of Atlanta, gross domestic product grew at an annual rate of 1.4% in the first quarter and is expected to grow at an annual rate of 2.2% in the second quarter.
There have been some minor fluctuations in the labor market recently, with the number of people continuing to apply for unemployment benefits hitting the highest level since November 2021.
