The latest US CPI data has arrived, with US inflation falling to 3.3% in May 2024. Indeed, the data shows that the figure came in lower than expectations. This month’s data is an important part of the Federal Reserve’s action and when they will decide to cut interest rates.
The CPI report shows that inflation has once again arrived above the 3% mark for the 12th consecutive month. To this point, traders have remained pessimistic that the figure will fall below that target any time soon. Subsequently, that reality decreases the odds of interest rate cuts until later this year, as it is still far from the Fed’s 2% inflation target.
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US Inflation Says Above 3% as Interest Rate Cut Uncertainty Lingers
Since 2020, the United States economy has been in a very difficult position. Rising inflation forced the Federal Reserve to engage in a years-long tightening campaign, leading to notable interest rate increases. Although those have stopped, the expected interest rate cuts depend on how inflation responds.
When April data showed a falling figure, all eyes looked to the importance of the following month. Indeed, it was set to clearly show a direction and provide more informed expectations regarding Federal Reserve action. Now, that data is in, as US inflation has fallen to 3.3% in May 2024.
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The outcome is interesting and places the Federal Reserve in a critical position. The agency has adopted a wait-and-see approach to interest rate cuts, which has delayed any action. Furthermore, the data becomes increasingly vital as the presence of cuts becomes prolonged by the implemented strategy.
Scott Anderson, chief US economist at BMO Capital Markets, discussed the Fed approach based on recent inflation figures. Specifically, Anderson writes that “progress on cooling inflation appears to have resumed in the second quarter, keeping Fed rate cuts on the table for later this year.” However, he also noted that there is no timetable for when those could take place.