In a surprising turn of events, the latest inflation data has economists feeling optimistic about the upcoming policy announcement from the Federal Reserve. The Consumer Price Index (CPI) for May revealed the lowest yearly increase in consumer prices since July 2022, catching many experts off guard.
JPMorgan chief US economist Michael Feroli believes that the unexpected inflation numbers could lead to a more dovish stance from the Fed, with a higher likelihood of a two-cut median dot in the policymakers’ expectations for future interest rates. This shift in the “dot plot” could signal a more accommodative approach from the central bank in light of the positive inflation data.
Furthermore, the recent spike in the unemployment rate has added to the argument for a potential interest rate cut to support the labor market. Renaissance Macro head of economics Neil Dutta pointed out that the increase in the unemployment rate, coupled with easing core inflation, suggests that it may be time for the Fed to recalibrate its monetary policy to prevent any further damage to the economy.
As Fed Chair Jerome Powell prepares for his press conference following the policy announcement, economists are eagerly awaiting to see how the central bank will respond to the promising inflation print. With expectations running high for a more dovish tone from the Fed, all eyes will be on Powell as he addresses the nation on the future of monetary policy.
