US Economy News Today: Inflation Slowed in May, Buoying Rate Cut Hopes
Consumer Sentiment Ticks Lower Despite Improving Inflation Views
June 28, 2024 11:41 AM EDT
Consumers felt slightly more pessimistic about the economy and their finances in June, despite forecasting lower inflation.
The University of Michigan Consumer Sentiment Index declined to 68.2 in the final reading for June, down almost a full point from May’s reading, but within the survey’s margin of error. Survey director Joanne Hsu described the monthly change as “steady.”
The survey showed improvement in consumers’ views on inflation, with year-ahead expectations dropping to 3.0%, falling back to within the pre-pandemic range. Consumers also expect inflation five years from now to be 3.0%, the third straight month at that level.
Federal Reserve officials closely follow consumer surveys on inflation, which helps shine a light on behavior that can lead to increasing prices. However, the survey’s assessment of consumers’ views on current economic conditions also moved lower.
“While consumers exhibited confidence that inflation will continue to moderate, many expressed concerns about the effect of high prices and weakening incomes on their personal finances,” Hsu said.
-Terry Lane
Inflation Slowed in May, Buoying Rate Cut Hopes
June 28, 2024 08:41 AM EDT
The Federal Reserve’s preferred measure of inflation slowed down in May.
Prices as measured by the Personal Consumption Expenditures (PCE) index, were essentially unchanged over the month. That was the slowest pace since November.
Year-over-year, prices have risen 2.6%, down from 2.7% in April. “Core” inflation, which excludes volatile prices for food and energy, slipped to 2.6% from 2.8%. That is closer to the Federal Reserve’s annual goal of a 2%.
“As expected, prices were unchanged in May, and the gain in the core PCE deflator was the smallest since 2020,” wrote Oxford Economics’ Micheal Pearce. “Officials will want to see a few more encouraging inflation reports before beginning to cut interest rates, but they will not wait until inflation falls to their 2% target.”
Today’s report backed up findings from the Consumer Price Index (CPI) earlier this month. Both reports showed that inflation may still be running too hot for the liking of Fed officials and many household budgets, but it’s on the way down. The declines in the second quarter have also likely put to rest fears that inflation is flaring back up after increases in the first quarter.
Officials at the Federal Reserve pay closer attention to PCE rather than CPI when setting their influential fed funds rate, which affects interest rates on mortgages, credit cards, car loans and other kinds of borrowing.
Because of that, today’s report was a good sign for those hoping for relief from the fed funds rate that sits at a 23-year high. The Fed has kept the rate high for more than two years to push down inflation by discouraging borrowing and spending, but today’s report supports economists’ view that the central bank could cut rates as early as September.
This blog post has been updated to include economist commentary and clarify the index movement.