By I. Hansana, Jadetimes News
U.S. Inflation Slows Sharply in June, Raising Hopes for Fed Rate Cut
Price increases decelerated more significantly than expected in June, suggesting high inflation may be easing and potentially paving the way for the Federal Reserve to reduce interest rates that influence everything from mortgages to credit card payments.
The Consumer Price Index (CPI) rose 3% year over year in June, down from a 3.3% annual rate in May. From May to June, prices fell by 0.1% the first notable monthly decline since May 2020, early in the pandemic.
Thursday's report from the Bureau of Labor Statistics fuels optimism that the Fed might cut interest rates in September, offering some relief to voters ahead of the November election, which both parties believe could be influenced by Americans' views on the economy.
In his remarks to Congress earlier this week, Fed Chair Jerome Powell acknowledged the risks of maintaining high interest rates for too long but expressed a need to see "more good data" on inflation before making any changes.
The unexpectedly strong report from Thursday could provide the necessary data. "Core" inflation, which excludes the volatile food and energy sectors, increased by just 0.1% from May to June, marking the slowest monthly growth since January 2021. Gasoline prices dropped by 3.8%, used vehicle prices fell by 1.5%, and shelter costs previously a significant factor in inflation rose by only 0.2% in June.
While Fed officials are unlikely to announce any interest rate changes at their meeting later this month, the central bank may hint at a potential shift during its annual gathering in Jackson Hole, Wyoming, in August.
The Fed has already faced pressure to lower rates amid a steadily cooling labor market. The unemployment rate now stands at 4.1%, the highest point since the post pandemic period, excluding the job losses surge in 2020. Although many economists' fears of a recession have diminished since last year, there is growing concern about the three month consecutive rise in unemployment.
"The labor market is experiencing a non recessionary cooling (as it has been since the spring of 2022)," wrote Guy Berger, director of economic research at the Burning Glass Institute, in a recent Substack note. "We’re not at the tipping point into recession yet, but I don’t have a lot of confidence about the distance from that tipping point."
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