The Fed's fight against inflation will get much tougher from here as it may be difficult to go easily under 4% in 2H 2023
Inflation rose 4% year-over-year in May, the smallest advance since March 2021, indicating a cooling of inflation that allows the Federal Reserve to potentially pause interest rate hikes. While inflation remains above the Fed's 2% target, the central bank is expected to forgo a rate increase this week after 10 consecutive hikes. Core inflation, excluding food and energy items, remained high, but underlying details suggest encouraging trends. Factors like falling used car prices and smaller rent increases may contribute to a slowdown in core inflation. As a result, despite a potential pause in rate hikes, the Fed is unlikely to cut rates in the near future. The next CPI report in July will be critical for Fed decisions in subsequent policy meetings.
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