US Annual CPI at 4% in May: What’s Next for the Fed’s Interest Rate?

The Fed is scheduled to meet on June 14th and make its decision on the interest rate.

The year-over-year inflation rate was around 4% in May, down from 4.9% in April, according to a report (CPI) from the US Bureau of Labor Statistics (BLS). The data comes ahead of a meeting of Federal Reserve policy makers, who can either pause or raise rates again on June 14.

The annual core CPI, an important measure of inflation that excludes volatile food and energy prices, was flat at 5.3%, versus an expected increase of 5.3%. The core CPI also rose 0.4% monthly, while economists had expected a 0.4% rise. Previous CPI reports showed that core inflation rose by 5.5% annually and by 0.4% on a monthly basis.

A break or one last rate hike in July?

The latest inflation data comes ahead of the Federal Open Market Committee (FOMC) meeting. US central bank officials are set to decide their next move regarding rates and the long-term course of monetary policy.

Investors and market watchers hope today’s data will convince the Federal Reserve to skip an interest rate hike this month – a move that could restore optimism to the US stock market after a tumultuous 2022. While the annual rate of inflation has fallen significantly from its peak of 9.1% in June last year, core CPI has been difficult to tame.

Since May 2022, the Fed has continually raised interest rates to bring down the inflation rate that peaked in 4 decades, bringing the federal funds rate to a range of 5.00% – 5.25% – the highest level since September 2007. But even though markets are generally expecting Essential for the Fed to put on the brakes, another likely possibility is a rate hike to the ultimate target in July ahead of an extended pause that is expected to last into early 2024, as measured by CME Trading Group’s Federal Reserve Funds Futures Market.

Neither the author, Ruhamin Hakshinas, nor this website, The Talkist, provide financial advice. Please refer to the Our site policy online before making any financial decisions.

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