US Inflation Update: Rising Prices and Interest Rate Impact

The US has seen positive inflation data, potentially leading to lower interest rates this year. The Consumer Price Index increased by 3.3% in May compared to the same month last year, with the "core" index showing the lowest yearly growth since April 2021. However, prices increased by 3.4% over the previous year and 0.1% over the previous month, according to economists' forecasts.

Inflation decreased slightly in April after three months of sharp price increases that upset investors and worried Federal Reserve officials. The expectation that inflation will return to the Fed's two percent objective after a second month of cooling is expected to give rise to optimism that rate reduction may occur later this year.

Inflation spiked after President Biden assumed office and signed into law the American Rescue Plan, a massive deficit spending measure. This combination of fiscal policy, supply chain difficulties, and an accommodating monetary policy with interest rates close to zero led to demand increasing more quickly than the economy could support. The "Bidenflation" caused public displeasure with Biden's economic leadership and historically low popularity ratings.

The Federal Reserve is most likely to maintain its benchmark interest rate at a range of 5.25 to 5.50 percent on Wednesday. Investors are confident that the Fed's benchmark will drop after its November meeting and there is around a 70% possibility of a reduction at the September meeting.

In May, food costs increased by 0.1%, while energy prices decreased by 2%. Core goods prices were stable for the whole month, with services increasing by 0.2% due to increases in housing costs and healthcare costs.


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