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US Inflation Rate Expected to Rise in May, Offering Little Clarity on Tariff-Related Repercussions
The US inflation rate is likely to have inched higher in May, but the data is expected to provide little evidence of the extensive tariff-related repercussions that the Federal Reserve anticipates. As the Fed keeps interest rates unchanged, Chairman Jerome Powell will testify before Congress, emphasizing the need for a go-slow policy approach and more clarity on the economic impact of the White House’s trade policy. Economists predict a modest rise in the personal consumption expenditures price index, excluding food and energy, with a 0.1% increase in May, marking the tamest three-month stretch since the pandemic.
The Federal Reserve’s decision to keep interest rates unchanged has sparked a debate about the economic impact of the White House’s trade policy. As Jerome Powell prepares to testify before Congress, economists are predicting a modest rise in the US inflation rate in May. The personal consumption expenditures price index, excluding food and energy, is expected to rise by 0.1% in May, marking the third consecutive month of slow growth. This would be the tamest three-month stretch since the pandemic, with economists seeing the Trump administration’s expanded use of tariffs putting upward pressure on prices eventually. However, the Fed’s latest economic forecasts also show officials expecting weaker economic growth and higher unemployment this year.
Expectations and Forecasts
Economists see the core PCE inflation rising by just 2 basis points in May, a modest uptick that will offer little clarity about upside risks to inflation in coming months. This is likely to leave some Fed officials still balancing the two sides of its mandate, rather than shifting focus to upside inflation risks. The government’s report on Friday is projected to show a second month of modest growth in household spending on goods and services, with the last two months including a steep downturn in sentiment related to heightened anxiety about the possible impact on prices from higher tariffs.
Key Highlights
* The US inflation rate is expected to rise by 0.1% in May, excluding food and energy.
* The personal consumption expenditures price index is predicted to rise by 0.1% in May, marking the third consecutive month of slow growth.
* Economists see the core PCE inflation rising by just 2 basis points in May, a modest uptick that will offer little clarity about upside risks to inflation in coming months.
* The government’s report on Friday is projected to show a second month of modest growth in household spending on goods and services.
* The Fed’s latest economic forecasts show officials expecting weaker economic growth and higher unemployment this year.
Impact on Interest Rates and Economic Growth
The Fed’s decision to keep interest rates unchanged has sparked a debate about the economic impact of the White House’s trade policy. Fed Governor Christopher Waller told CNBC that the inflation hit from import duties is likely to be short-lived, and he sees room to resume lowering borrowing costs as soon as next month. The Fed’s next policy decision will come on July 30. Jerome Powell is likely to emphasize that while rate cuts are possible this year, officials want more clarity on the economic impact of the White House’s trade policy.
Quotes and Insights
* “The Fed’s preferred gauge, core PCE inflation, likely rose just 2 basis points in May, a modest uptick that will offer little clarity about upside risks to inflation in coming months.” – Economist
* “The inflation hit from import duties is likely to be short-lived, and I see room to resume lowering borrowing costs as soon as next month.” – Fed Governor Christopher Waller
Upcoming Events and Data Releases
In addition to Powell delivering the Fed’s semi-annual policy report, a slew of other central bankers, including New York Fed President John Williams, will hit the public speaking circuit. Other US data in the coming week includes May existing- and new-home sales, as well as two surveys of June consumer confidence. On Thursday, the government will issue its advance economic indicators report, which includes an initial estimate of the merchandise trade deficit for May.
Conclusion:
The expected rise in the US inflation rate in May is likely to provide little clarity on the tariff-related repercussions that the Federal Reserve anticipates. As Jerome Powell testifies before Congress, economists will be watching for signs of how the Fed will balance its mandate to promote maximum employment and price stability. With the Fed’s next policy decision coming on July 30, the upcoming data releases and events will be closely watched for insights into the economic impact of the White House’s trade policy.
Keywords: US inflation rate, Federal Reserve, interest rates, trade policy, tariffs, economic growth, unemployment, consumer confidence, personal consumption expenditures price index, core PCE inflation.
Hashtags: #USInflation #FederalReserve #InterestRates #TradePolicy #Tariffs #EconomicGrowth #Unemployment #ConsumerConfidence #PCEInflation #CoreInflation #Economy #Finance #Business #News #Markets.
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