Inflation Slows, Federal Reserve Holds Rates Steady, Market Caution Prevails: Portafolio Capital Markets Recap for Week Ending 06/14/2024
Inflation showed signs of slowing down in May. The Consumer Price Index (CPI) remained unchanged but rose 3.3% year-over-year, slightly below market expectations. Core CPI, which excludes food and energy prices, increased by 0.2% for the month and 3.4% year-over-year, also below estimates. Price increases were moderated by a 2% decline in the energy index and a minimal 0.1% rise in food prices, signaling a potential easing in the persistent cost-of-living increases that have burdened consumers.
Although overall inflation and core measures were lower, shelter inflation rose by 0.4% for the month and was up 5.4% from a year ago. Housing-related costs remain a significant challenge in the Federal Reserve’s efforts to control inflation, as they constitute a large portion of the CPI weighting. Within the energy component, gas prices fell by 3.6%. Motor vehicle insurance, another significant inflation factor, declined by 0.1% monthly but remained over 20% higher on an annual basis.
Economists are cautiously optimistic, viewing this as an indicator that inflationary pressures might be starting to cool off, potentially influencing upcoming policy decisions by the FOMC.
For more information, visit: https://www.bls.gov/news.release/cpi.nr0.htm
The Federal Reserve kept its key interest rate unchanged at this month’s FOMC meeting. The federal funds rate, which influences overnight borrowing costs for banks and many consumer debt products, is targeted between 5.25% and 5.50%. This range is the result of 11 rate increases from March 2022 to July 2023. The committee indicated that only one rate cut is expected before the end of the year. The Federal Open Market Committee also suggested that the long-term interest rate is higher than previously anticipated. Policymakers noted modest progress towards the 2% inflation objective in recent months.
In the FOMC's Summary of Economic Projections, participants raised their 2024 inflation outlook to 2.6%, or 2.8% excluding food and energy. Both projections are 0.2 percentage points higher than the estimates made in March.
In our opinion, this decision reflects the Fed's strategy to carefully manage economic growth while observing their dual mandate of price stability and maximum employment.
The FOMC’s Press Release can be found here:
https://www.federalreserve.gov/newsevents/pressreleases/monetary20240612a.htm
Summary of Economic Projections:
https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20240612.htm
FOMC Press Conference:
https://www.federalreserve.gov/monetarypolicy/fomcpresconf20240612.htm
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