As the Federal Reserve is about to announce its interest rate decision, the latest inflation data showed that price pressures in the United States eased slightly from last month.
At 20:30 Beijing time on Wednesday, the U.S. unadjusted CPI annual rate in May was 3.3%, lower than the expected 3.4%, and fell from the previous value of 3.4%, reaching a three-month low; the monthly rate was 0%, the lowest level since July 2022, also lower than the expected 0.1%, and the previous value was 0.30%. The U.S. unadjusted core CPI annual rate in May was 3.4%, lower than the expected 3.5%, and the previous value was 3.6%; the monthly rate was 0.2%, lower than the expected and previous value of 0.3%.
After the data was released, the US dollar index plunged 60 points in a short period of time, and the yield on US two-year Treasury bonds fell to 4.693%, the lowest level since April 5. Spot gold continued to rise, reaching $2,340 per ounce, and the intraday increase widened to 1%. Spot silver's intraday increase widened to 3%.
Market expectations for the Fed to cut interest rates have risen sharply. Interest rate futures now imply about a 70% chance of a Fed rate cut before September. Swap contracts show that the market expects a 100% chance of a 25 basis point rate cut by the Fed in November. Traders in the futures market have fully digested the expectation of two rate cuts this year, while according to LESG data, the market expected one to two rate cuts this year before the CPI data was released.
According to institutional analysis, the unexpectedly low U.S. consumer prices in May benefited from the decline in gasoline prices, but against the backdrop of a continued strong job market, inflation may still be too high for the Federal Reserve to start cutting interest rates before September. CPI has been on a downward trend since the release of solid data in February and March. As major retailers slash prices on goods ranging from food to diapers, price pressures may continue to ease.
Analyst Chris Anstey commented on the US May CPI report, saying that this is actually the first month with a good inflation report. We need a few more good reports like this to really get the Fed to cut interest rates in September. He pointed out that interest rate futures show that traders are slightly more confident that the Fed will cut interest rates twice this year.
Mona Mahajan, senior investment strategist at Edward Jones, also said that before the Fed gets the confidence it needs to really start signaling a rate cut, they still want to see maybe two or three data points moving in the right direction. They are still waiting for a sharp drop in housing and rents, and are also watching the cooling of the labor market and wage growth. But it is undeniable that inflation data in May cooled across the board, some underlying trends look positive, and it looks like even areas like airfares have slowed down. Overall energy prices also had a nice month-on-month decline. Overall, this can reset the plan for the Fed.
Daniel Mulholland, senior managing director at Crews & Associates, said, "This inflation report shows that the data is very weak. The Fed is now fully likely to cut interest rates in September."
Analyst Cameron Crise also noted that the super core services sector excluding housing fell 0.04%, the first negative growth since September 2021. This naturally makes two rate cuts in 2024 the obvious center of the possible policy distribution and opens the door for the market to price in more rate cuts in 2025.
Gregory Faranello, head of U.S. interest rate trading and strategy at investment firm AmeriVet Securities, said the May CPI report was a "very good inflation data" and they expect the trend to continue. Today's Fed meeting should see officials "move toward two rate cuts in 2024," and weaker CPI data from now on will keep expectations of a rate cut in September on the rise.
The mild CPI data may set the tone for the upcoming closely watched Federal Reserve policy meeting. At 2:00 a.m. Thursday, the Federal Reserve will announce its interest rate decision and Summary of Economic Projections (SEP), and half an hour later, Federal Reserve Chairman Powell will hold a monetary policy press conference.
In fact, a key suspense of the Fed meeting tonight is whether the median forecast of the dot plot will show whether the Fed will cut interest rates once or twice this year. The two possibilities were very close before the release of the CPI data. According to the latest Bloomberg survey of economists, 41% of economists believe that the Fed will predict two rate cuts later today, while 41% of economists believe that it will be one rate cut or even no rate cut.
In addition, analyst Enda Curran pointed out that Fed Chairman Powell may be very frank when commenting on CPI data at the press conference after the interest rate decision - these data clearly point to progress, but he will be very careful to avoid triggering bets on a near-term rate cut. He has had to abandon the policy turning point in December last year and does not want to "draw fire" again.
As the Federal Reserve is about to announce its interest rate decision, the latest inflation data showed that price pressures in the United States eased slightly from last month.
At 20:30 Beijing time on Wednesday, the U.S. unadjusted CPI annual rate in May was 3.3%, lower than the expected 3.4%, and fell from the previous value of 3.4%, reaching a three-month low; the monthly rate was 0%, the lowest level since July 2022, also lower than the expected 0.1%, and the previous value of 0.30%. The U.S. unadjusted core CPI annual rate in May was 3.4%, lower than the expected 3.5%, and the previous value was 3.6%; the monthly rate was 0.2%, lower than the expected and previous value of 0.3%.
After the data was released, the US dollar index plunged 60 points in a short period of time, and the US two-year Treasury yield fell to 4.693%, the lowest level since April 5. Spot gold continued to rise, reaching $2,340 per ounce, and the intraday increase widened to 1%. Spot silver's intraday increase widened to 3%.
Market expectations for the Fed to cut interest rates have risen sharply. Interest rate futures now imply about a 70% chance of a Fed rate cut before September. Swap contracts show that the market expects a 100% chance of a 25 basis point rate cut by the Fed in November. Traders in the futures market have fully digested the expectation of two rate cuts this year, while according to LESG data, the market expected one to two rate cuts this year before the CPI data was released.
According to agency analysis, the U.S. consumer
