Current:Home > StocksInflation may have cooled in May, but Federal Reserve is seeking sustained improvement -Wealth Empowerment Zone
Inflation may have cooled in May, but Federal Reserve is seeking sustained improvement
View
Date:2025-04-15 02:50:24
WASHINGTON (AP) — Less-expensive gas likely slowed U.S. consumer inflation in May. But when the government reports the latest monthly price data Wednesday, Wall Street traders and Federal Reserve officials will be paying particularly close attention to an index that excludes volatile food and energy costs.
These so-called “core” prices are expected to have risen 0.3% from April to May, the same as in the previous month, according to a survey of economists by data provider FactSet. Compared with a year earlier, core inflation is thought to have dipped from 3.6% to 3.5%.
Even as overall inflation moderates, such necessities as groceries, rent and health care are much pricier than they were three years ago — a continuing source of public discontent and a political threat to President Joe Biden’s re-election bid. Most other measures suggest that the economy is healthy: Unemployment remains low, hiring is robust and consumers are traveling, eating out and spending on entertainment. Yet polls show that the cumulative price increases are weighing on Biden’s popularity.
The Fed is closely monitoring each month’s inflation report for signs that it’s succeeding in its fight against rising prices. A rise in core consumer prices of 0.3% is too high, over time, to be consistent with the central bank’s 2% annual inflation target and could be seen as a disappointment. Still, the Fed’s officials prefer a separate inflation measure, which typically comes in slightly lower than Wednesday’s consumer price index.
After their latest two-day policy meeting ends Wednesday — just hours after the release of the May inflation data — the officials are poised to leave their benchmark interest rate unchanged at a 23-year high of about 5.3%.
Lower gas prices are thought to have slowed overall inflation to just 0.1% from April to May, according to FactSet, down from 0.3% the previous month and the lowest figure since October. Measured from a year earlier, consumer prices are believed to have risen 3.4% in May, the same as in April.
Persistently elevated inflation has posed a vexing challenge for the Fed, which raises interest rates — or keeps them high — to try to slow borrowing and spending, cool the economy and ease the pace of price increases. The Fed has kept its key rate unchanged for nearly a year after having rapidly raised it in 2022 and 2023. Those higher rates have led, in turn, to more expensive mortgages, auto loans, credit cards and other forms of consumer and business borrowing.
The longer the Fed keeps borrowing costs high, the more it risks weakening the economy too much and potentially causing a recession. Yet if it cuts rates too soon, it risks reigniting inflation. Most of the policymakers have said they think their rate policies are slowing growth and should curb inflation over time.
Inflation had fallen steadily in the second half of last year, raising hopes that the Fed could pull off a “soft landing,” whereby it manages to conquer inflation through higher interest rates without causing a recession. Such an outcome is difficult and rare.
But inflation came in unexpectedly high in the first three months of this year, delaying hoped-for Fed rate cuts and possibly imperiling a soft landing.
In early May, Chair Jerome Powell said the central bank needed more confidence that inflation was returning to its target before it would reduce its benchmark rate. Powell noted that it would likely take more time to gain that confidence than Fed officials had previously thought. Several officials have said in recent weeks that they needed to see several consecutive months of lower inflation.
In addition to declining gas prices, economists have estimated that prices for several other items fell from April to May, including clothing, furniture and new cars. Though used cars are projected to have risen in price after falling for several months, that may prove a temporary blip.
The cost of apartment rents, a key driver of inflation, could cool slightly. And auto insurance is thought to have risen by a sharp 1% just from April to May, according to economists at Goldman Sachs, though that would be down from increases of 1.8% and 2.6% in the previous two months.
Some signs suggest that inflation will continue to cool in the coming months. Americans, particularly lower-income households, are pulling back on their spending. In response, several major retail and restaurant chains, including Walmart, Target, Walgreen’s, McDonald’s and Burger King, have responded by announcing price cuts or deals.
veryGood! (77)
Related
- A Mississippi company is sentenced for mislabeling cheap seafood as premium local fish
- Disney+'s 'Percy Jackson' series is more half baked than half-blood: Review
- Trump defends controversial comments about immigrants poisoning the nation’s blood at Iowa rally
- Homicide victim found in 1979 in Las Vegas identified as teen who left Ohio home in search of her biological father
- What do we know about the mysterious drones reported flying over New Jersey?
- Rite Aid banned from using facial recognition technology in stores for five years
- Fact-checking 'Maestro': What's real, what's 'fudged' in Netflix's Leonard Bernstein film
- EU court annuls approval of French pandemic aid to Air France and Air France-KLM
- Justice Department, Louisville reach deal after probe prompted by Breonna Taylor killing
- Soccer star Dani Alves’ trial for alleged sexual assault to start in February
Ranking
- From family road trips to travel woes: Americans are navigating skyrocketing holiday costs
- Detroit police officer faces charges after punch of 71-year-old man turns fatal
- UK inflation falls by more than anticipated to 2-year low of 3.9% in November
- States are trashing troves of masks and pandemic gear as huge, costly stockpiles linger and expire
- How to watch new prequel series 'Dexter: Original Sin': Premiere date, cast, streaming
- A Rwandan doctor gets 24-year prison sentence in France for his role in the 1994 genocide
- Ireland to launch a legal challenge against the UK government over Troubles amnesty bill
- Earthquake in China leaves at least 126 dead, hundreds injured
Recommendation
California DMV apologizes for license plate that some say mocks Oct. 7 attack on Israel
A Japan court orders Okinawa to approve a modified plan to build runways for US Marine Corps
Missouri Supreme Court strikes down law against homelessness, COVID vaccine mandates
House Democrats send letter to Biden criticizing Netanyahu's military strategy
The city of Chicago is ordered to pay nearly $80M for a police chase that killed a 10
Trump defends controversial comments about immigrants poisoning the nation’s blood at Iowa rally
As 'The Crown' ends, Imelda Staunton tells NPR that 'the experiment paid off'
Worried About Safety, a Small West Texas Town Challenges Planned Cross-Border Pipeline