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People shop for shoes at The Village at Corte Madera store on May 30, 2024 in Corte Madera, California.
CNN
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“Good news is bad news” It’s a phrase that has been commonly heard for some time now.
When strong economic reports are released, they are too often clouded by concerns that the good news for the economy actually means it will be a long time before the Federal Reserve cuts interest rates.
This week has been a flurry of good news indeed. The closely watched inflation indicator is Prices have cooled more than expected; Americans’ economic outlook I was more optimistic than ever before. After years of declining inflation expectations, U.S. import prices reversed course and plummeted on Friday, adding fuel to the disinflation fires.
“The data reaffirms the idea that the economy, employment and inflation are all cooling, which should set the conditions for the Fed to ease its tight policy rates later this year,” said Joe Brusuelas, principal and chief economist at RSM U.S. “And longer-term interest rates will fall, which means financing costs for buying a car, a dishwasher, a washer and a dryer will all fall.”
He added: “That’s good news.”
This week has seen multiple inflation reports, a Fed meeting, new central bank rate-cutting schedules and economic forecasts, and a ton of supporting data. He had the ability to move the market. And he is also a predictor of the economic trajectory.
And that certainly happened.
on monday, New survey data from the New York Fed U.S. consumers are reporting increased optimism about their current and future financial situations, the stock market and the continued slowdown in inflation, the report found.
On Tuesday, the National Federation of Independent Business’s optimism index hit its highest level this year (though business uncertainty also rose).
But those data points were inconsequential when it comes to what will happen Wednesday.
Inflation rate is Consumer price index falls more than expected in MayIt was the first time prices were flat on a monthly basis since July 2022. On an annualized basis, consumer prices rose 3.3% from a year earlier. Slowing from 3.4% in April,
Falling gasoline prices also played a role.as well Stable food pricesBut a key measure of underlying inflation also fell: Core CPI rose just 0.2% month-on-month, the slowest increase since October, while the annual rate fell to 3.4%, the lowest in three years.
“The disinflationary trends we saw in 2023 are re-emerging in that the seasonal noise typically seen in end-of-year inflation was just ‘noise,'” Brusuelas said.
Weak consumer price index (CPI) data fuelled traders’ expectations that a rate cut could come as early as September.
The Fed took a hawkish stance and tried to sabotage the move by keeping rates at current levels again late in the afternoon. And the authorities sent only one signal. Interest rate cuts for the rest of the year 3 pencil marks Last December.
The market doesn’t seem to be buying. The One Cut plan, in particular, came after Thursday’s producer price index showed rising wholesale prices. It fell from April to May Additionally, U.S. import prices fell 0.4% in May after rising 0.9% in April, according to the BLS Import/Export Price Index.
Excluding gasoline prices, imports still fell 0.3%.
“Wherever Fed officials look, inflation is now subsiding after a worrying spike in the first quarter,” Chris Rupkey, chief economist at FwdBonds, wrote in a Friday note. “Fed officials didn’t get what they were hoping for on inflation trends when they met earlier this week, but winds of change are starting to blow in their bearish inflation outlook as the economy may slow more than expected at the end of the second quarter.”
“We would not rule out the first rate cut in September, and the market believes so too,” Rupkey wrote.
Brusuelas said further good news was likely to come next week and later this month.
Slower inflation growth would make Americans feel more comfortable about their overall spending, he said, adding that that should become evident in the retail sales report due next week. Moreover, the deflation seen in the CPI and PPI sets the stage for a similarly weak report of the personal consumption expenditures price index, the Fed’s preferred inflation measure, due later this month.
“It’s entirely possible that we won’t see interest rate increases on a monthly basis and inflation will slow to the 2.5% to 2.6% range,” he said. “That would put us close to the Fed’s 2% target and would require serious discussions about rate cuts in the near future.”