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By William J. Luther
Inflation fell further in April, according to new data from the Bureau of Economic Analysis (BEA). The Personal Consumption Expenditures Price Index (PCEPI), the Federal Reserve’s preferred measure Economic inflationIt grew at a sustained CAGR of 3.1 percent in April, down from 4.1 percent in the previous month. It has grown at an average annual rate of 3.7 percent over the past three months.
Economic inflation It has typically exceeded the Fed’s average Economic inflation target since January 2020, with thirty-eight out of fifty-one (74.5%) scored. Economic inflation Above 2 percent. Prices today are 16.4 percent higher than they were in January 2020 and 9.0 percentage points higher than they would have been if they had grown at an annual rate of 2.0 percent over the period.
Figure 1. Address and basic personal consumption Expenditure price index with trend of 2%, January 2020 – April 2024
essence Economic inflationIt also declined, which excludes volatile food and energy prices. The Core Consumer Price Index (PCEPI) grew at a sustained compound annual rate of 3.0 percent in April, compared to 4.0 percent in the previous month. It has grown at an annual rate of 3.4 percent over the past three months.
while Economic inflation With interest rates falling again, members of the Federal Open Market Committee (FOMC) suggested that interest rates should remain high for longer than they previously expected. In the minutes of the latest FOMC meeting, released last week, “members noted disappointing readings on… Economic inflation During the first quarter and (…) they assessed that it would take longer than previously expected for them to gain more confidence in this Economic inflation It was moving sustainably towards 2 percent. Some members even “indicated a willingness to tighten the policy further at the risk of doing so.” Economic inflation Embodied in such a way that such action is appropriate.”
In March, the average FOMC member predicted that the target range for the federal funds rate would fall to 4.5 to 4.75% by December 2024, which could amount to three 25 basis point cuts this year. It seems likely that they will review this forecast when they meet again in June. CME Group currently expects the federal funds rate target to fall to at least that low at just 12.4 percent. There is a 34.4 percent probability that the target range will be 4.75 to 5.0 percent in December and a 38.6 percent probability that it will be 5.0 to 5.25 percent. There is a very small chance (0.2 percent) that the FOMC will have a higher target next December.
FOMC members will almost certainly vote to keep the target interest rate steady at the June meeting. In the absence of an incredible decline in Economic inflationOr real output or employment, they are likely to keep the target rate steady in July as well. CME Group gives a slight edge (54.9 percent) to a lower price target after the September meeting, although November seems more likely (67.8 percent).
When the Fed starts cutting interest rates — and how quickly it cuts once it starts — will ultimately depend on the incoming data, and how much confidence the incoming data gives FOMC members. Economic inflation Finally back on track. For now, one should expect interest rates To remain high for some time.
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Editor’s note: The summary points for this article were selected by Seeking Alpha editors.
