The latest data from the Commerce Department indicates that the Federal Reserve's preferred inflation measure stayed low last month, signaling a gradual cooling of price pressures. This development is seen as paving the way for the Fed to potentially start reducing interest rates in the upcoming fall season.
In June, prices saw a modest 0.1% increase compared to May, following a flat reading in the previous month. Year-on-year inflation dipped from 2.6% to 2.5%. Excluding volatile food and energy prices, core inflation rose by 0.2% from May to June, with a 2.6% increase from the same period last year.
The recent figures suggest that the peak of inflation, which hit a four-decade high two years ago, is gradually subsiding. Fed Chair Jerome Powell has expressed confidence that the cooling price trends observed this summer are reinforcing the belief that inflation is on track to return sustainably to the central bank's target level of 2%.
Lower interest rates, coupled with weaker inflation and a resilient job market, could positively impact Americans' economic outlook and potentially influence the ongoing presidential race between Vice President Kamala Harris and former President Donald Trump.
Consumer spending in June showed a slight uptick, along with income growth even after adjusting for inflation. The report suggests that the economy might be experiencing a rare 'soft landing,' where the Fed successfully manages to slow down economic growth and inflation through higher borrowing rates without triggering a recession.
With hiring momentum easing and the economy maintaining a steady pace of growth, it is widely anticipated that the Fed will announce a cut to its benchmark interest rate during the mid-September meeting. However, Powell is expected to emphasize the need for additional data to confirm the consistent slowdown in inflation.
Food prices inched up by 0.1% last month, continuing a trend of marginal increases following significant spikes in grocery prices in recent years. Energy prices, on the other hand, dropped by 2.1% in June, primarily driven by a sharp decline in gas prices. New car prices also saw a 0.6% decrease after a surge during the pandemic.
Despite inflation falling from 7% in 2022, everyday essentials like groceries, gasoline, and rent remain notably higher than three years ago, contributing to public dissatisfaction with the Biden-Harris administration's economic management.
While inflation is moderating, the economy continues to expand steadily. Recent government data revealed a healthy 2.8% annual growth rate in the U.S. economy for the April-June quarter, with robust consumer and business spending. Job creation remains positive, particularly in the healthcare and government sectors, although the unemployment rate has slightly risen to 4.1% after a prolonged period below 4%.
