Federal Reserve’s Inflation Measures
The Federal Reserve’s preferred inflation measure saw a gradual cooling in June, indicating a potential rate cut later this year. The Personal Consumption Expenditures index increased by 2.5% in June compared to a year earlier, slightly slower than May’s 2.6% and aligning with economist forecasts.
The “core” inflation measure, excluding food and fuel costs for a better overview of the underlying trend, remained steady in June. Yearly core inflation stood at 2.6%, matching the May figure. Both inflation measures showed modest increases on a monthly basis.
While inflation has significantly decreased from its peak above 7% in 2022, it has remained above the Fed’s 2% target for over three years. This sustained period of high inflation has impacted consumer sentiment, particularly concerning rising prices, affecting the economic outlook and political landscape.
Fed’s Caution and Monetary Policy
The Federal Reserve has maintained interest rates at 5.3% for a year, aiming to curb consumer demand and stabilize the economy. Despite the recent decline in inflation, policymakers are cautious about reducing rates prematurely. The Fed’s reluctance to lower borrowing costs reflects the need to ensure full control over inflation before implementing significant monetary policy changes.
