U.S. inflation came in below expectations, cheering investors hoping the U.S. Federal Reserve could begin cutting interest rates ©retirement in a few months.
The figures of Bureau of Labor Statistics showed that prices did not increase this month for the first time since last June. Economists expected an increase of 0.1 percent.
This means that the annual inflation rate has fallen to 3.3 percent, slightly below the 3.4 percent expected by markets.
Energy prices exerted the greatest downward pressure, falling 2.0 percent. Housing costs, which cover housing, rose 0.4 percent for the fourth consecutive month.
Core inflation – which excludes volatile components such as food and energy – rose 0.2 percent in May, slightly below expectations and bringing the annual rate at 3.4 percent.
“This decline provides evidence that monetary policy is having the desired effect and moving the economy closer to the Fed’s two percent target,” said Richard Flynn, Chief Executive Officer. ©ral at Charles Schwab UK.
The pound jumped on the news and was trading around 0.80 percent higher against the dollar at $1.2840. London markets also benefited from a slight boost.
The May figures will be of particular importance as investors await the final decision on interest rates from the US Federal Reserve later today.
Markets believe that interest rates will remain unchanged during the seventh consecutive meeting, but the more important question is how the projections of the famous “dot-plot” of the Fed have evolved.
These forecasts show how policymakers expect economic conditions to evolve and will give investors clues about when rate makers might be ready to cut interest rates .
During the year, inflation regularly rose above expectations, forcing markets to reassess the start of the rate reduction cycle.
At its most recent meeting, the Fed acknowledged that there had been “a lack of further progress” in bringing inflation back to its target.
New figures released last week showed the economy added many more jobs than expected in Aprilsuggesting that the economy is still very dynamic.
Markets are not pricing in rate cuts this summer, but could consider a cut in September. According to CME’s Fedwatch, before today’s inflation numbers were released, there was a 50 percent chance that interest rates would be cut in September.
This percentage increased to around 60 percent after today’s release. Kyle Chapman, foreign exchange analyst at Ballinger Group, said the figures would be too late to change the dot-plot charts.
However, Chapman said markets should “certainly expect” the numbers to be reflected at Jerome Powell’s press conference. Chapman suggested that Powell might be “particularly enthusiastic”.
The Fed’s latest move comes a week after the European Central Bank cut rates for the first time in five years, launching the process of reducing interest rates. interest rates among the main central banks.
By CityAM
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