The U.S. Consumer Price Index (CPI) for June is expected to strengthen the trend that inflation is beginning to settle. This anticipated slowing of inflation could lead to a potential interest rate cut by the Federal Open Market Committee (FOMC). The projected monthly increase in CPI for June is 0.08%, while the core CPI inflation rate, which excludes volatile food and energy prices, is estimated to be 0.28%.
These numbers provide valuable insights into the current inflation trajectory. The FOMC aims for a core inflation rate between 0.2% and 0.3% to confidently say that inflation is nearing target levels. Earlier in 2024, monthly inflation rates for January, February and March were elevated. However, improvements were seen in April and May.
Towards the end of 2023, the Fed anticipated three interest rate cuts. Now into 2024, the spiked prices noted in the beginning of the year have adjusted expectations to only one interest rate cut. The Fed has acknowledged this as a temporary spike, with prices in April and May beginning to decline, allowing for a potential interest rate cut as soon as September.
Housing prices, a significant component of the CPI, have been increasing rapidly. If these costs stabilize, it could significantly improve the FOMC’s overall inflation goals. In addition to housing, the prices of vehicles and transportation are also critical. Recently, vehicle prices have shown a decline, and energy prices have slightly fallen. However, due to the volatility of energy prices, the FOMC places less emphasis on them.
Should the June inflation data align with or fall below these projections, bringing inflation closer to the FOMC’s target, we could see an interest rate cut later this year. The FOMC is looking for sustained periods of mild monthly inflation to make decisive policy moves.
Sources
Moore, S. (2024, June 23). What to expect from June’s inflation data. Forbes. https://www.forbes.com/sites/simonmoore/2024/06/23/what-to-expect-from-junes-inflation-data/
Smialek, J. (2024, June 14). Fed keeps rates steady and forecasts only one cut this year. The New York Times. https://www.nytimes.com/live/2024/06/12/business/fed-rates-inflation-cpi
US Core consumer price index mom (I:USCCPIMM). YCharts. (n.d.). https://ycharts.com/indicators/us_core_consumer_price_index_mom#:~:text=US%20Core%20Consumer%20Price%20Index%20MoM%20is%20at,lower%20than%20the%20long%20term%20average%20of%200.30%25.
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