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Inflation in the US: the Fed’s favorite indicator showed a slight slowdown in May

Inflation in the US: the Fed’s favorite indicator showed a slight slowdown in May
Inflation in the US: the Fed’s favorite indicator showed a slight slowdown in May

Inflation in the United States fell slightly in May to 2.6% year-on-year, as expected, according to the PCE index published this Friday by the Department of Commerce. In April, theThe 12-month inflation rate had been 2.7%, according to that indicator, the index most followed by the Federal Reserve. Monthly inflation in May was zero, compared to 0.3% the previous month.

The results are in line with the average forecast of economists polled by Dow Jones Newswires and the Wall Street Journal.

The annual PCE change “decelerated to its slowest pace since 2021 and is within range of the Federal Reserve’s 2% target,” said Rubeela Farooqi, chief economist at High Frequency Economics.

The PCE evolved in the same direction as the consumer price index (CPI), published at the beginning of the month and to which pensions are indexed, which slowed down to 3.3% year-on-year and fell to zero in one month.

Excluding volatile food and energy data, so-called core inflation fell in May to 2.6% year-on-year from 2.8% the previous month and to 0.1% month-on-month from 0.3% previously.

Data released Friday by the Commerce Department also showed that personal income rose 0.5% from the previous month, up slightly from 0.3% in April.

Personal savings as a percentage of disposable income came in at 3.9% in May, slightly above the revised figure of 3.7% in the previous month.

Federal Reserve: does the cut begin?

The data adds arguments for the Fed to consider cutting interest rates, currently at a 23-year high, at 5.25%-5.50%. This would make credit less expensive for households and businesses.

“The inflationary context is evolving favorably and, associated with a more moderate trajectory of household spending and growth, favors a change in monetary policy towards a less restrictive stance, perhaps as soon as September,” said Rubeela Farooqi.

The Fed warned during its last meeting in mid-June that several months of falling inflation would be necessary before a rate cut is underway.

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Reuters

Those responsible for the Monetary Policy Committee (FOMC) expect a single interest rate cut, of just 0.25 percentage points, between now and the end of the year.

US household income grew faster in May than in April (+0.5% vs. +0.3%), as did spending (+0.2% vs. 0.1%), according to figures of the Department of Commerce. Consumption is the engine of growth in the world’s largest economy and represents more than two-thirds of GDP.

Inflation will be a major issue for Americans as they vote to elect their next president., November 5. This is such an important issue that he was chosen to open the first debate between candidates Joe Biden and Donald Trump on Thursday night.

Source: Ambito

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