July 21, 2024

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Fed rate cuts could become more likely after key inflation report

2 min read

The Federal Reserve’s favored inflation yardsticks are poised to show the tamest monthly advances since late last year — a stepping stone for officials to begin lowering interest rates, possibly as soon as September.

Economists expect no change in the May personal consumption expenditures price index and a minimal 0.1% gain in the core measure that excludes food and energy, based on median projections in a Bloomberg survey of economists. 

The report, due Friday, is also projected to show 2.6% annual advances in both the overall and core gauges. The expected increase in the core measure, which paints a better picture of underlying inflation, would remain the smallest since March 2021.

Since their last meeting, Fed officials have said that while they’re encouraged by the simmering down in other inflation data — including the consumer price index — they need to see months of such progress before lowering rates.

At the same time, the labor market – the other part of the Fed’s dual mandate – is still plugging along, albeit in a lower gear. A healthy job market is providing policymakers some flexibility on the timing of interest-rate cuts.

The latest inflation numbers will be accompanied by personal spending figures that will inform on services outlays after recent retail sales data showed less of an appetite for merchandise. The median forecast calls for a slight acceleration in nominal personal consumption as well as income. 

What Bloomberg Economics says: “We don’t think the slower inflation print will be enough to convince officials by the time of the July FOMC meeting that inflation is on a firm trajectory down to the Fed’s 2% target.” —Estelle Ou, Stuart Paul and Eliza Winger, economists.

Among other data in the coming week are readings on June consumer confidence and reports on May contract signings for purchases of both new and previously-owned homes. In addition to the third estimate of first-quarter economic…

Vince Golle, Craig Stirling, Bloomberg

2024-06-23 10:40:15

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