Inflation Eased in May, Improving the Odds of a 2024 Rate Cut
WSJ
David Uberti and Nick Timiraos
Updated June 12, 2024 9:03 am ET
U.S. inflation slowed in May, an ease in price pressures that should boost the likelihood of interest-rate cuts by the Federal Reserve later this year.
The consumer-price index, a measure of goods and service costs across the economy, rose 3.3% annually last month, the Labor Department said Wednesday. In April, prices rose 3.4%.
Core prices that exclude volatile food and energy items rose 0.2% in May, the mildest increase since last July, and were up 3.4% from a year ago, the smallest year-over-year rise since 2021. The closely watched measure of inflation was much softer than economists predicted.
Wednesday’s report keeps alive the prospect that the Fed might be able to cut interest rates at its September meeting. Officials have said they are looking to regain confidence that price growth is slowing after several disappointing figures at the beginning of the year.
Stock futures jumped after the report, while Treasury yields fell. Futures markets on Wednesday priced in a roughly 70% chance of at least two rate cuts by year’s end, according to CME Group, up from 52% Tuesday.
Wednesday’s inflation report, which came hours before a Fed meeting is set to conclude, was better than many investors’ expectations.
Americans in May paid less for transportation than the previous month, while price hikes for medical care services also tapered. Prices at the pump fell despite summer driving season kicking into high gear.
The cost of apparel and dairy products declined in May as some major retailers began cutting prices for thousands of products. Walmart executives said last month that grocery rollbacks were up 45% from a year earlier, while Target unveiled new or coming discounts for items ranging from peanut butter to paper towels.
Economists and investors have eagerly awaited the report for a fresh glimpse into when the Federal Reserve may begin easing monetary policy that shapes mortgage rates, credit card interest and other borrowing costs across the economy.
Few on Wall Street or in Washington believe the central bank will cut rates at the meeting that concludes Wednesday or a subsequent meeting in July.
But a well-behaved May inflation report was a likely prerequisite for the Fed to consider lowering interest rates after that, as officials have said they want to see a series of readings that rebuilds their confidence inflation will head lower. A hot reading, on the other hand, would have complicated efforts to cut rates without evidence of economic weakness.
Investors are betting that less restrictive policy will provide more fuel to an artificial-intelligence-focused stock market that has already powered through the highest rates in more than two decades. It may also release a pressure valve for consumers who have faced higher costs to take out loans as well as persistent price hikes.
After inflation held stubbornly high to start 2024, a string of data in recent weeks suggested that the world’s largest economy has resumed its gradual slowdown without painful ruptures to the labor market. Many domestic companies are muscling ahead of foreign counterparts. The U.S. unemployment rate has been 4% or lower for 30 consecutive months. Wage gains continue.
Even so, many Americans are gloomy about the state of the economy, thanks largely to the cumulative toll of yearslong price pressures.
Americans’ short-term inflation expectations ticked lower in May, according to the Federal Reserve Bank of New York, while more households grew optimistic about their financial situations. Small businesses’ optimism also rose to its highest level of the year, according to a National Federation of Independent Business index.
David Uberti and Nick Timiraos
Updated June 12, 2024 9:03 am ET
U.S. inflation slowed in May, an ease in price pressures that should boost the likelihood of interest-rate cuts by the Federal Reserve later this year.
The consumer-price index, a measure of goods and service costs across the economy, rose 3.3% annually last month, the Labor Department said Wednesday. In April, prices rose 3.4%.
Core prices that exclude volatile food and energy items rose 0.2% in May, the mildest increase since last July, and were up 3.4% from a year ago, the smallest year-over-year rise since 2021. The closely watched measure of inflation was much softer than economists predicted.
Wednesday’s report keeps alive the prospect that the Fed might be able to cut interest rates at its September meeting. Officials have said they are looking to regain confidence that price growth is slowing after several disappointing figures at the beginning of the year.
Stock futures jumped after the report, while Treasury yields fell. Futures markets on Wednesday priced in a roughly 70% chance of at least two rate cuts by year’s end, according to CME Group, up from 52% Tuesday.
Wednesday’s inflation report, which came hours before a Fed meeting is set to conclude, was better than many investors’ expectations.
Americans in May paid less for transportation than the previous month, while price hikes for medical care services also tapered. Prices at the pump fell despite summer driving season kicking into high gear.
The cost of apparel and dairy products declined in May as some major retailers began cutting prices for thousands of products. Walmart executives said last month that grocery rollbacks were up 45% from a year earlier, while Target unveiled new or coming discounts for items ranging from peanut butter to paper towels.
Economists and investors have eagerly awaited the report for a fresh glimpse into when the Federal Reserve may begin easing monetary policy that shapes mortgage rates, credit card interest and other borrowing costs across the economy.
Few on Wall Street or in Washington believe the central bank will cut rates at the meeting that concludes Wednesday or a subsequent meeting in July.
But a well-behaved May inflation report was a likely prerequisite for the Fed to consider lowering interest rates after that, as officials have said they want to see a series of readings that rebuilds their confidence inflation will head lower. A hot reading, on the other hand, would have complicated efforts to cut rates without evidence of economic weakness.
Investors are betting that less restrictive policy will provide more fuel to an artificial-intelligence-focused stock market that has already powered through the highest rates in more than two decades. It may also release a pressure valve for consumers who have faced higher costs to take out loans as well as persistent price hikes.
After inflation held stubbornly high to start 2024, a string of data in recent weeks suggested that the world’s largest economy has resumed its gradual slowdown without painful ruptures to the labor market. Many domestic companies are muscling ahead of foreign counterparts. The U.S. unemployment rate has been 4% or lower for 30 consecutive months. Wage gains continue.
Even so, many Americans are gloomy about the state of the economy, thanks largely to the cumulative toll of yearslong price pressures.
Americans’ short-term inflation expectations ticked lower in May, according to the Federal Reserve Bank of New York, while more households grew optimistic about their financial situations. Small businesses’ optimism also rose to its highest level of the year, according to a National Federation of Independent Business index.
