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Inflation eased further, and stocks rose

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The Fed’s mission to tame inflation received further boosts from the fresh data, which suggests that price growth is easing. The key CPI rose 0.1% in May, hitting an annual 4% target, below economists’ target and is the slowest growth since March 2021.

Mixed inflation results in general

The fall in inflation for May was attributed to a large decline in energy cost which had fallen by around 3.6% every month. Likewise, other categories such as airfares and household furnishings, also saw a meaningful drop.

Despite positive improvement, Core prices which exclude the food and energy sectors, saw a climb of 0.4%, which match the pace seen in April. This is on a backdrop of firm shelter costs and used-car prices that jumped. On a positive note, core CPI on an annual basis still decline to 5.3% from 5.5%, a welcoming improvement.

FOMC meeting set to see a pause in rate hike

The latest inflation data almost sealed the deal for a pause in rate hikes. The CPI report did not provide fresh surprises and as well as expected by the Fed. Holding interest rates steady while assessing the impact of previous rate hikes sinking into the economy will be considered a prudent choice.

Our assessment of the possible path ahead

We believe the Fed still has a long road in its fight to rein in inflation. Hence, any pause in rate hike can be seen as temporary. There is the possibility of a resurgent interest rate movement in July FOMC.

As such, we believe the most appropriate outcome would be a “hawkish” pause, holding the interest rate steady in today’s FOMC meeting while remaining open to a hike in subsequent meetings and maintaining a data-dependent stance. This will be a more balanced approach.

What’s on the menu today?

8.30 pm : PPI data
2 am : FOMC Economic Projection
2.30 am : FOMC Press Conference

It is 14 June, Wednesday, 8.50 am in Singapore and 8.50 pm in New York. We are entering another important data day, and we hope everyone has a safe trading day!