Key facts
- US inflation cooled more than anticipated in May, with CPI rising 3.3% year-over-year and core CPI up 3.4%.
- The Federal Reserve held interest rates steady at its June meeting.
- Fed policymakers now project only one rate cut in 2024, a reduction from previous forecasts.
- Market participants increased expectations for two Fed rate cuts by year-end following the inflation data.
- Fed Chair Jerome Powell emphasized the need for more data to confirm inflation's sustainable path to 2%.
Inflation in the United States showed signs of easing in May, with the Consumer Price Index (CPI) rising less than economists had predicted. The annual CPI increase was 3.3%, a slight deceleration from the previous month, while the monthly figure was flat. Core CPI, which strips out volatile food and energy costs, also saw a smaller-than-expected increase of 0.2% month-over-month and 3.4% year-over-year.
Following the release of the inflation data, the Federal Reserve concluded its June policy meeting, opting to keep its benchmark interest rate unchanged, as widely anticipated. However, the central bank's updated economic projections, often referred to as the 'dot plot,' revealed a shift in policymakers' outlook. The median projection now indicates only one interest rate cut is expected in 2024, a reduction from the three cuts projected in March.
Despite the Fed's more hawkish stance, financial markets reacted by increasing their bets on rate cuts. Traders now anticipate a higher probability of two rate cuts occurring by the end of the year. Fed Chair Jerome Powell, in his post-meeting press conference, reiterated that the central bank requires more consistent positive data to be confident that inflation is on a sustainable path toward its 2% target before initiating monetary easing.