Current Stance on Interest Rates:
- Federal Reserve Chair Jerome Powell stated that the Fed needs more data before cutting interest rates to ensure that recent weak inflation readings accurately reflect underlying price pressures.
- The Fed has maintained its benchmark policy interest rate within the range of 5.25% to 5.5% since July 2023 and has increased the interest rate 11 times since March 2022.
Inflation Trends:
- Although inflation has been cooling off, it remains above the Fed’s target of 2%.
- Recent data shows some progress: inflation rose 3.3% in May, lower than the expected 3.4%, and the Consumer Price Index for All Urban Consumers (CPI-U) remained unchanged in May after a 0.3% increase in April.
- Core CPI, excluding volatile energy and food prices, rose 3.4% in May, slightly below the expected 3.5%.
Future Projections:
- Despite previous promises of three interest rate cuts in 2024, persistent inflation has led the Fed to project possibly only one rate cut this year.
- Investors are hoping for at least one rate cut, but the Fed’s cautious stance suggests it may take longer before any cuts are implemented.
Context and Implications:
- Powell’s comments were made at a monetary policy conference in Portugal sponsored by the European Central Bank.
- The Fed’s careful approach indicates that while there has been some modest progress in reducing inflation, it is not yet confident enough to implement rate cuts.
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