When is the June CPI report? How could it affect the Fed’s rate decision?
The data on inflation in June is due out this week, it’s expected to show further cooling, but investors are still predicting a rate hike from the Fed.
The Federal Reserve has been watching the US labor market closely as it has been taking steps to rein in inflation. The most recent data on the US labor market showed hiring slowed in June to its slowest pace in two and a half years. Employers added 209,000 new payrolls last month, missing economists’ expectations of a 225,000 net gain.
Despite “a whiff of weakening,” by historical norms, jobs growth remains strong. “By no means is the Fed’s work done. We’re in a protracted battle against inflation,” Sean Snaith, the director of the University of Central Florida’s Institute for Economic Forecasting, told Reuters.
When is June CPI report? How could it affect the Fed’s rate decision?
The US Bureau of Labor Statistics (BLS) will release June’s Consumer Price Index (CPI) on Wednesday, and economists are expecting inflation to have dropped to 3.1 percent year-over-year from 4.0 percent the month before. Although price increases are forecast to slow, it is unlikely to sway the Fed from raising interest rates by a quarter point when they meet in two weeks.
Last month the Federal Open Market Committee voted not to increase interest rates for the first time in over a year. But according to the CME FedWatch Tool, over 92 percent of traders predict that Fed policymakers will implement a hike to bring the federal funds rate to the range of 5.25 percent to 5.50 percent.
Why will the Fed raise rates in July?
Fed officials have been broadcasting that more rate hikes could be necessary, Chair Jerome Powell has said perhaps at least two before the end of the year. Policymakers raised the federal funds rate 10 consecutive times prior to last month’s meeting by a total of 500 basis points. They are beginning to slow the pace as they attempt to pull off a soft landing, bringing inflation down to their 2 percent target without pushing the US economy into recession.
Even though the labor market showed signs of cooling, within the Junes jobs report wage data the average hourly earnings growth held steady at 0.4 percent, same as the month before. Year-over-year wage inflation was 4.4 percent, also unchanged from May.
Furthermore, the labor market remains tight with 1.6 jobs available for every person that is unemployed and seeking work. Unemployment fell from 3.7 percent to 3.6 percent.
On top of all of that, the core Personal Consumption Expenditures (PCE) price index data for May was still more than double the Fed’s target at 4.6 percent. The Department of Commerce’s inflation gauge is the preferred measure of price increases for central bank policymakers as it provides a fuller picture of costs for consumers.