The U.S. Bureau of Labor Statistics’ consumer price index (CPI) report, released on Tuesday, reveals that inflation in the United States has eased to a yearly rate of 4%. The latest development arrives just ahead of the upcoming Federal Open Market Committee (FOMC) meeting scheduled for June 14. The prevailing market sentiment leans towards the anticipation that the Fed will maintain the current benchmark interest rate.
Consumer Price Index Report Shows U.S. Inflation Slows to 4% Amid Market Expectations for Steady Interest Rates
The latest report from the U.S. Bureau of Labor Statistics (BLS) reveals that the annual inflation rate dipped to 4% in May. This data marks the smallest increase since March 2021, a significant turning point when inflation began its rapid ascent, prompting the Federal Reserve to adopt measures such as monetary tightening and interest rate hikes.
“The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in May on a seasonally adjusted basis, after increasing 0.4 percent in April,” the U.S. Bureau of Labor Statistics reported. “Over the last 12 months, the all items index increased 4.0 percent before seasonal adjustment.”
The announcement had a positive impact on Wall Street as all four key stock indexes experienced gains, while the crypto economy witnessed a 0.62% rise on Tuesday morning. However, the New York-based spot prices of gold and silver took a hit, with gold declining by 0.23% and silver shedding 0.37%. Market participants eagerly await the upcoming FOMC meeting tomorrow to ascertain whether the U.S. Federal Reserve will opt for an increase in the federal funds rate.
Presently, the interest rate stands at its highest point in 16 years, and the CME Fedwatch tool indicates a staggering probability of over 93% that there will be no rate hike this month. Approximately 6.9% of market participants anticipate a 25-basis-point (bps) increase by the U.S. central bank. Nevertheless, history has shown the Fedwatch tool to be remarkably accurate, suggesting that the 25bps hike may be deferred until the subsequent FOMC meeting.
While there is a prevailing belief among many that the Federal Reserve will refrain from increasing the rate this month, a considerable number of analysts and economists hold the view that the Fed will maintain this pause throughout the entirety of 2023.
“The encouraging trend in consumer prices will provide the Fed some leeway to keep rates unchanged this month and if the trend continues, the Fed will not likely hike for the rest of the year,” Jeffrey Roach, chief economist at LPL Financial told CNBC on Tuesday following the latest CPI report.
Will the latest dip in inflation convince the Federal Reserve to maintain interest rates or could it signal a shift in monetary policy? Share your thoughts and opinions about this subject in the comments section below.