November 30, 2023

Low pressure inflation creates expectations that US interest rates will fall

The proof for that is The Swelling The U.S. cold will not exclude Federal Reserve officials from the 50 percent point interest rate scheduled for upcoming meetings in June and July, but if this trend continues it could lead to a lower rate hike in September.

Report of the Department of Commerce United States The Personal Consumer Expenditure (PCE) price index, released on Friday, rose 6.3% in April.

This ratio is three times higher than the central bank’s target of 2%. Although Prices Are still increasing, the pace of increase is slower than the previous month. The April PCE reading marked the first recession since November 2020.

The main PCE index, which is food prices and Energy Aiming to provide a clear reading of sustained price pressures, the stock rose 4.9% – again an uncomfortably high rate but the second month calm of an index that peaked at 5.3% in February. .

The decline in core inflation is especially good news for the central bank, with new evidence that housing costs continue to rise despite rising prices. Friday’s consumer spending rose 0.9% last month.

“Although inflation in the 4% range is still high for the central bank, we see it moving in the right direction,” wrote Dan Houghton, a nationwide economist. As long as inflation remains stable or moderate, “this will give the Fed more flexibility later this year.”

The central bank’s great hope is to go through this era of price shocks and uncertainty, with a recession at the pace of growth, worse than the absolute recession that led to the dramatic increase. Unemployment.

Traders of futures contracts linked to the Fed’s benchmark interest rate challenge that the central bank will slow the rate hike. Fee It was 0.25 percentage points in September.

For that to happen, the rest of the world must cooperate.

The impact of the Ukrainian war on world prices Ingredients The ongoing corona virus locks in China are two major risks beyond the control of the central bank.

Federal Reserve officials say they are closely monitoring inflation expectations for signs that high inflation is now entrenched in US domestic and business psychology. Recent reports suggest that these risks have not at least worsened.

Meanwhile, the Fed group sees PCE inflation at 4.3% by the end of the year and 2.5% by the end of next year, as the “historically large” tightening of financial conditions across the economy, the central bank’s minutes showed this week.