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 tone from Fed Chair Jerome Powell during his press conference. The data may also prompt a shift in the “dot plot,” which outlines policymakers’ expectations for future interest rate changes.
“We had thought it was a close call between the median dot showing one or two eases this year,” Feroli explained in a note to clients. “If participants actively update their dots, this should increase the odds of a two-cut median dot.”
The positive inflation data is expected to push the Fed to remove a key sentence from its May statement regarding progress towards the 2 percent inflation target. Additionally, with the recent increase in the unemployment rate, some economists argue that the central bank should consider cutting interest rates to support the labor market.
Renaissance Macro head of economics Neil Dutta emphasized the need for recalibrating monetary policy in light of the latest economic indicators. “It does not take a rocket scientist to figure out what needs to be done. It is time to begin recalibrating monetary policy,” Dutta stated.
As the financial world eagerly awaits the Fed’s policy announcement and Powell’s press conference, all eyes will be on how the central bank responds to the unexpected inflation data and the evolving economic landscape. Stay tuned for updates as the story continues to develop.
