The annual rate of U.S. inflation slowed to its lowest level in more than two years last month, but lingering price increases will continue to force the Federal Reserve to consider further rate hikes.
The consumer price index rose 4% in May from a year earlier, down from April’s 4.9% annual gain and the slowest increase since March 2021. On a monthly basis, the consumer price index rose just 0.1 percent, data from the U.S. Bureau of Labor Statistics showed on Tuesday.
However, once volatile items such as food and energy are stripped out, the “core” CPI rose another 0.4% in May – matching April’s gain. Compared with the same period last year, core prices increased by 5.3%.
The latest inflation data came before the Federal Reserve began its two-day policy meeting. The FOMC is widely expected to walk away from raising rates this week after raising rates 10 times in a row since March 2022, but will continue to tighten policy this year if data warrants it.
In a recent speech, Fed Governor Philip Jefferson backed the idea of a pause, saying it would give officials time to assess incoming data, the impact of the Fed’s rapid tightening of monetary policy over the past 15 months, and recent U.S. regional economic turmoil. Consequences Bank.
In addition, Jefferson, who was promoted by the Biden administration to be the next vice chairman of the Federal Reserve, emphasized that the pause in raising interest rates in June “should not be interpreted as saying that we have reached the peak interest rate of this cycle.”
Some officials have said they don’t think the current level of the federal funds rate, which hovers between 5% and 5.25%, is not enough to dampen demand enough to hold back one of the worst inflationary episodes to hold back the central bank. banks for decades.
Updated forecasts from individual officials for the federal funds rate, inflation, growth and unemployment are due to be released on Wednesday to coincide with the rate decision, and policymakers are widely expected to say at least 25 basis points more rate hikes are warranted this year.
Economists recently polled by the Financial Times believe the Fed will eventually have to raise its benchmark interest rate to between 5.5% and 6%. This suggests at least two more 25 basis point hikes this year.
Respondents’ main concern is that inflation is becoming entrenched and even harder to eradicate.
The median estimate for the personal consumption expenditures price index excluding food and energy costs — the Fed’s favored measure of inflation — rose 0.2 percentage points to 4% by year-end compared with the previous survey in March. The annual growth rate was 4.7% through April, well above the Fed’s 2% target.