US Inflation in May 2024 Flat Increasing Chances of Rate Cut

FED Expectations are for One Rate Cut by End of Year

The US inflation fell by 0.33% in May, leading to expectations of early interest rate cuts, which boosted the stock market. The Federal Reserve officials planned rate cuts according to economists’ expectations, hinting at potential cuts by 2024. President Joe Biden welcomed the data showing a decrease in inflation and expressed optimism about economic progress.

Consumer prices in the US remained unchanged in May due to cheaper gasoline and goods. The Consumer Price Index (CPI) increased by 3.3% year-on-year while the Core CPI rose by 3.4%. Despite inflation remaining high, the Federal Reserve is expected to start cutting interest rates in September. Inflation pressures eased last month, with costs like motor vehicle insurance declining.

The CPI data prompted financial markets to boost the probability of interest rate cuts by the Federal Reserve in September and possibly December if two cuts are on the table. Our forecast is for one rate cut by the end of the year.

Outlook and Implications

The flat CPI for May 2024 suggests that inflationary pressures may be stabilizing after a period of rapid increases. The decrease in energy prices is a positive sign for consumers, as it could lead to lower overall costs for households. However, the slight increase in food prices could still impact consumer budgets. The moderation in core prices indicates a possible easing of inflation in the near term, although continued monitoring is necessary to assess the trend.

The stability of supercore prices and the flatness of goods prices point to a mixed picture for different sectors of the economy. Overall, the current data suggests a cautious optimism regarding inflation, but uncertainties remain, especially regarding global economic conditions and supply chain disruptions. Policymakers will need to closely monitor the situation and adjust policies as needed to support economic stability and growth.