Fed won’t raise rates after July absent of plan

Reade Pickert and Augusta Saraiva, "Inflation at 3% Flags End of Emergency, Turning Point for Fed," Bloomberg, 7-12-2023, https://webcache.googleusercontent.com/search?q=cache:https://www.bloomberg.com/news/articles/2023-07-12/inflation-at-3-flags-end-of-emergency-turning-point-for-fed-- 嘉玮

The US inflation rate slid to a more than two-year low, a major step toward ending the cost-of-living emergency — and possibly the Federal Reserve’s historic monetary tightening, too.

At 3% last month, consumer-price inflation is now just one-third of the level it reached a year ago, which was the highest in four decades. And the details for June were also better than expected, with key measures of underlying inflation coming in below forecasts.

Inflation in US Decelerates by More Than Forecast

Consumer price index and core gauge post smallest gains since 2021

That’s after a period of two years or so when the great inflation debate hogged the headlines and loomed large in everything from US presidential politics to bar-room conversations.

None of this means it’s game over in the fight against price pressures — especially for the Fed, which is widely reckoned to be locked-in to another interest-rate increase later this month. Still, there’s now a better-than-even chance that a July 26 hike, which would take the benchmark US rate to 5.5%, could be the last in quite a while.

That’s the way markets were betting after Wednesday’s data. Yields on short-term Treasury yields plunged, stocks rose, and the dollar was headed to the lowest in more than a year by one measure – all in anticipation that the Fed might ease up.

‘Coming to End’

“The new data could give the Fed reason to debate whether any further rate hikes after this month are needed,” wrote Ryan Sweet, chief US economist at Oxford Economics. “This tightening cycle by the Fed is likely coming to an end.”

What Bloomberg Economics Says...

“June’s soft CPI report comes at a pivotal moment, when the Fed is close to end of its hiking cycle. It’s not only base effects working in favor of cooling inflation — the softening economy is also playing a role. While the FOMC will most likely hike at the July 25-26 meeting, more officials may become skeptical that further hikes are needed after that.”