It’s More Good News For the Fed As Latest CPI Report Shows Inflation Lowest in Two Years
Key takeaways
- Headline inflation has dropped to 4% in the US, the lowest figure since March 2021
- Private rents and used cars accelerated, energy and air travel decelerated
- CME FedWatch tool now puts an interest rate pause from the Fed this week at 94% likely
The consumer price index (CPI), which is a key indicator of how inflation is faring, came in better than expected. It’s good news for the Fed, who received the news just before entering their meeting deciding whether to pause or ‘skip’ interest rates this month. We’ve got the lowdown below.
Inflation is falling, but it’s still double what the Fed is aiming for — and it’s potentially eating into your portfolio gains. Take control with Q.ai’s Inflation Protection Kit, which holds inflation-busting assets like TIPS, precious metals and commodities to help you build wealth even when inflation is sticky.
Download Q.ai today for access to AI-powered investment strategies.
What did the latest CPI report say?
Headline inflation climbed by 0.1% to hit a 4% annual pace, beating economist expectations and becoming the lowest inflation figure since March 2021. The bigger-than-expected decrease was largely down to cooling energy prices, which fell by 3.6%, plus air travel and household furnishings lowering in price.
Core inflation, which excludes volatile food and energy prices, came in at 0.4% up for May which was the same as April. Crucially, core prices have slowed down annually: the result was 5.3% in May versus 5.5% the previous month.
Private rents climbed by 0.5% to hit an 8.7% annual growth rate, while used cars and trucks continued to climb — this time by 4.4%. Both keep core inflation higher than the Fed would like, but analysts predict both will drop in the coming months.
What was the market reaction?
The CME FedWatch tool jumped from around 78% certainty that the Fed wouldn’t raise interest rates this month to 94%, making it all but certain. What remains to be seen is whether another interest rate increase could happen in July.
Buoyed by the latest win, the S&P 500 reached a 52-week high on Tuesday, climbing 0.7% to hit 4,369. The Dow Jones Industrial Average rose by the same percentage, or 230 points, while the Nasdaq Composite added 0.8%.
The bottom line
Inflation has been a global issue, with most markets struggling with the economic havoc wreaked by the pandemic. But the US seems to be handling the situation better than most. It gives hope that interest rates may be able to come down sooner than expected — though the Fed can’t rest on its laurels.
The Fed should be doing a victory lap at the news, but there’s still a way to go in taming inflation to hit the 2% goal. Before then, you can take advantage of Q.ai’s Inflation Protection Kit, which holds a basket of diversified assets like securities and precious metals that match or beat inflation levels. It’s all powered by AI so you don’t have to worry about the upfront work while growing your portfolio.
Download Q.ai today for access to AI-powered investment strategies.
