WASHINGTON–Newly released inflation data appear to support those predicting the Federal Reserve will not raise interest rates when it concludes its Open Market Committee meeting tomorrow.
The new Consumer Price Index numbers from the Labor Department show inflation rose 4% through May, slightly below what many had expected and the slowest pace in more than two years. In April, The Fed has been pushing interest rates up since March 2022 in an attempt to throttle inflation, with the Fed Funds rate now just above 5%.
“The headline CPI increased 4% over the last 12 months in May, down from 4.9% in April. This is the largest decline in one month since prices started to come down from their peak. The decrease in energy prices contributed the most to this decline,” said CUNA Senior Economist Dawit Kebede. “Core inflation, which excludes food and energy items, increased 5.3% over the year, down from 5.5% in April. Housing and used car prices led the increase in May. Housing is a lagged indicator in the CPI measure, and it is expected to slow down in the second half the year, further contributing to the decline in core prices. The increase in used car prices in the last two months is expected to reverse as new car prices are declining and the supply is improving.
“This is an encouraging report for the Federal Reserve to pause the rate hike during the June meeting,” Kebede continued. “The core inflation, excluding shelter, which the Federal Reserve tracks as a measure future inflation trend, has continuously declined in previous months.”
NAFCU: 'Encouraging, But...'"The downtrend in overall prices is encouraging, but inflation remains persistent within certain areas of the economy," said NAFCU Economist Noah Yosif. "This will require further fine-tuning of monetary policy from the Fed, which remains unlikely to deviate from its forward guidance given an immaterial change in May’s readings, suggesting a pause to the current tightening cycle at this meeting. More aggressive action via additional rate hikes will likely be necessary. NAFCU will continue to monitor changes in the economic forecast for members and consumers."