Key Inflation Gauge Cooled in May, Welcome News for Federal Reserve
Progress in fighting overall inflation has been swifter and more encouraging. The Personal Consumption Expenditures index measure that includes food and gas climbed 3.8 percent in the year through May, in line with economists’ forecasts — and below 4 percent for the first time since April 2021. That measure peaked at about 7 percent last summer.
More moderate overall inflation is taking some pressure off consumers: Cheaper tanks of gas and less rapid price increases in the grocery aisle are helping paychecks go further. But for officials at the Fed, signs that inflation remains stubborn under the surface have been a reason to worry. Officials believe that they need to wrestle core price increases lower to make sure that the economy’s future is one of modest and steady price increases.
To do that, Fed policymakers have been raising interest rates. Making it more expensive to get a home loan or expand a business restricts the economy’s momentum. By slowing growth and cooling demand, the moves are meant to make it harder for corporations to increase their prices without losing customers.
Policymakers skipped a rate increase at their June meeting after 10 straight moves, but they have signaled that they expect to lift rates beyond their current level of just above 5 percent — perhaps to 5.5 percent by the end of the year. Investors have been betting on only one more move this year, but they increasingly see two rate moves as a possibility.
Jerome H. Powell, the Fed chair, emphasized this week at an event in Madrid that the outlook for how much more rates might move this year is uncertain.
Source: The New York Times
