A promising inflation print on the morning of the Federal Reserve’s latest policy announcement has economists optimistic about the central bank’s statement, and Fed Chairman Jerome Powell’s press conference could be milder than initially expected.
The Consumer Price Index (CPI) for May showed the lowest annual increase in consumer prices since July 2022. Across the board, the figures showed slower inflation rates than economists expected.
Given the “magnitude” of these surprises, JPMorgan chief economist Michael Feroli believes the data could change how the “dot plot,” which charts policymakers’ expectations of where interest rates could go in the future, at 2 p.m. hour Dutch time. .
“We thought it was a close call between the median showing one or two easings this year,” Feroli wrote in a note to clients. “If participants actively update their points, as they are allowed, this should increase the likelihood of a two-cut midpoint.”
Feroli added that the inflation data will likely prompt the Fed to delete the sentence from its May statement, which said: “In recent months there has been a lack of further progress toward the Committee’s inflation target 2 percent.”
While Powell may not mention it directly, other economists have reasoned that given Wednesday’s positive inflation numbers and the recent spike in unemployment, the Fed should be close to cutting rates to ensure minimal damage to the labor market.
“The unemployment rate has increased by 0.6 [percentage points] from the low to 4.0% and reached March [summary of economist projections] We estimate that inflation is two quarters ahead of schedule and that core inflation has declined,” Neil Dutta, head of economics at Renaissance Macro, wrote in a note on Wednesday. “A rough rule of thumb would be to assume that core PCE at the end of the month is 0.1%.
He added: “It doesn’t take a rocket scientist to figure out what needs to be done. It’s time to start recalibrating monetary policy.”
