US CPI (May) - Inflation Update

1. Interest Rates: As expected, the Fed kept the overnight borrowing rate at 5.25%-5.50%. No changes here, but all eyes are on their future plans.

2. Inflation Data: The consumer price index (CPI) was flat in May, up 3.3% from a year ago, slightly below expectations. Core CPI, which excludes food and energy, rose 0.2% for the month and 3.4% year-over-year, the slowest since December 2023. This indicates that inflationary pressures from earlier in the year have subsided.

3. Market Reaction: Following the CPI report, stock futures climbed, and Treasury yields fell. The Dow Jones rose about 250 points, and the 10-year Treasury yield dropped to 4.27%.

- Shelter Costs: While overall inflation is cooling, shelter costs rose 0.4% for the month and 5.4% year-over-year. Housing remains a significant inflation driver and a challenge for the Fed.

- Energy and Food: Energy prices fell by 2%, and gas prices dropped by 3.6%. Food prices only increased by 0.1%, helping to keep overall inflation in check.

The Fed’s decision to hold rates steady while inflation data shows cooling is a cautious yet strategic move. They’re waiting for more consistent data before making significant policy changes. It’s interesting to see the market’s optimism about rate cuts later this year, but the Fed’s cautious stance suggests they need more convincing data.

Do you believe the Fed is right to be cautious, or should they start cutting rates sooner given the recent positive inflation data? Share your thoughts! 💬