The main inflation gauge cooled in May, we welcome Fed news

The Fed’s preferred measure of inflation slowed in May, which is moderately encouraging news that could give policymakers confidence that rate increases remain moderate — although progress remains slow.

Although inflation has generally declined significantly in recent months, Fed officials have been closely tracking the “core” measure of personal consumption expenditures that undercuts grocery and gas costs, which they believe provides a better indication of how price increases are shaping up. In the coming months and years. This action was held at a high level and was dropping hesitantly.

It eased – but not drastically – in May. Prices rose 4.6 percent from the previous year, excluding food and fuel. That compared with an expectation of a 4.7 percent increase, which would have matched the previous month.

Core inflation has ranged between 4.6 and 4.7 percent since December 2022, down from a peak of 5.4 percent last year, but still well above the 2 percent inflation target set by the Fed. Its stubbornness has worried policymakers, who have spent more than a year raising interest rates in an effort to combat rapid inflation.

Progress in combating general inflation has been faster and more encouraging. The personal consumption expenditures index that includes food and gas rose 3.8 percent in the year through May, in line with economists’ forecasts — and less than 4 percent for the first time since April 2021. That measure peaked at about 7 percent last summer.

More moderate general inflation is taking some of the pressure off consumers: Cheaper tanks of gas and rapid price increases in the grocery aisle are helping paychecks move forward. But for Fed officials, signs that inflation was still stalking just below the surface was cause for concern. Officials believe they need to roll back the underlying price increases to ensure that the future of the economy is one of modest and steady price increases.

To do this, federal policy makers raised interest rates. Making it more expensive to obtain a home loan or expand a business restricts the momentum of the economy. By slowing growth and cooling demand, these moves aim to make it more difficult for companies to increase their prices without losing customers.

Policymakers skipped a rate hike at their June meeting after 10 consecutive moves, but indicated they expected to raise rates beyond their current level of just over 5 percent — possibly to 5.5 percent by the end of the year. Investors have been betting on just one more move this year, but increasingly they see the potential for two price moves.

Jerome H. confirmed. Powell, chairman of the Federal Reserve, said this week at an event in Madrid that the outlook for how much price increases might move this year is uncertain.

“We’ve all seen inflation, time and time again, appear to be more persistent and stronger than expected,” Powell said. “That may change at some point. And I think we have to be ready to follow the data and be a little patient as we let this unfold.”

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