Fed’s Preferred Inflation Gauge Falls, Raising Likelihood of September Rate Cut
WASHINGTON — The Federal Reserve’s preferred measure of inflation remained weak last month, reinforcing evidence that price pressures are gradually easing and setting the stage for a Fed pickup. start to reduce interest rates in September.
Prices rose just 0.1 percent from May to June, the Commerce Ministry said Friday, compared with an unchanged figure the previous month. Compared with a year earlier, inflation fell to 2.5 percent from 2.6 percent.
Excluding volatile food and energy prices, core inflation rose 0.2% from May to June, up from 0.1% in the previous month. Measured over a year ago, core inflation rose 2.6%, unchanged from June. Economists closely monitor developments in core prices, which generally provide a better indication of future inflation trends.
Overall, Friday’s figures suggest that the worst inflation streak in four decades, which peaked two years ago, is underway. approaching the endFed Chairman Jerome Powell said this summer’s declining price data strengthened his confidence that inflation returns sustainably to the target level of 2% set by the central bank.
Lower interest rates and lower inflation, as well as a a still strong job marketcould cheer up Americans economy assessment and influence this year’s presidential race between Vice President Kamala Harris and former President Donald Trump.
Friday’s report also showed that consumer spending edged up in June. So did income, even after adjusting for inflation. The report suggests that a rare “soft landing,” in which the Fed manages to slow the economy and inflation through higher borrowing rates without triggering a recession, is happening — so far.
“The report can be summed up in two words: ‘good enough,'” said Robert Frick, an economist at Navy Federal Credit Union. “Spending is good enough to keep the expansion going, and income is good enough to keep spending going. And inflation is good enough that the Fed can easily make a decision to cut rates.”
Consumer spending rose 0.3% from May to June, slightly slower than the previous month’s 0.4% increase. Incomes rose 0.2%, down from 0.4% in May. Average inflation-adjusted income rose 1% from a year earlier, according to Friday’s report, though that figure slowed from 1.9% at the start of the year.
With hiring slowing and economic growth at a steady, if not vigorous, pace, the Fed is almost certain to cut its benchmark interest rate at its mid-September meeting. The central bank will meet for the first time next week. Powell is then expected to announce that Fed officials still want to see additional data to ensure inflation is slowing steadily.
Still, the central bank is likely to signal next week that it is moving closer to cutting borrowing costs.
“I expect Powell to be quite confident about September for easing,” said David Page, head of macroeconomic research at AXA IM, a London-based investment manager.
Last month, food prices rose just 0.1%, continuing a string of modest cost increases after grocery prices soared in 2021 and 2022. Compared with a year ago, food prices were up just 1.4%.
Energy prices fell 2.1% between May and June, led by a sharp drop in gasoline prices. Energy costs have increased 2% over the past year. New car prices fell 0.6% last month, after surging during the pandemic.
After surging to 7% in 2022, according to figures released Friday, inflation has steadily declined over the past year. Even so, the cost of basic necessities like groceries, gasoline and rent remains much higher than it was three years ago, a fact that has many voters disgusted with the Biden-Harris administration’s handling of the economy.
Inflation is slowing even as the economy continues to grow steadily. On Thursday, the government reported that the U.S. economy grew by a healthy annual rate of 2.8% Consumer and business spending grew at a strong pace in the April-June quarter, compared with an annual growth rate of just 1.4% in the first three months of the year.
Businesses continue to create jobs, although most of the hiring in recent months has been concentrated in just two sectors of the economy: health care and the public sector. The unemployment rate edged up to a still-low 4.1%, after the longest period below 4% in half a century.
