12 June 2024
If you are covering the latest inflation data from the US, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“With the Federal Reserve meeting later on today, all eyes have been on this inflation print and what indication it gives for when rate cuts may be initiated. Unfortunately for markets, the news that the annual rate of inflation has declined marginally compared to the previous month means we remain stuck in a holding pattern, waiting for either inflation to come down more quickly towards the 2% target, or for the economy to buckle under the strain and require a fresh bout of stimulus.
“Ultimately, despite weakening GDP growth, inflation simply remains too hot to warrant a rate cut at this juncture. With mixed signals coming from the labour market, showing strong payrolls data alongside rising unemployment and falling vacancies, the picture of a gradually slowing economy is not yet enough to ring alarm bells at the Federal Reserve, who remain laser-focussed on price stability. With the main lesson from the Great Inflation period of 50 years ago being that cutting interest rates too early can prove disastrous, both for the economy and for one’s personal reputation in the history books, the Federal Reserve will be anxious to avoid repeating the monetary mistakes of the 1970’s. For now, one rate cut this year remains a sensible prediction.
“For consumers, the data suggests that gas prices have eased somewhat in May, providing relief as we enter into the business end of the presidential election campaign. The economy, and inflation in particular, is going to be a significant battleground theme that both candidates are judged on. President Biden has clearly been at the helm of a strong economy through a challenging period, but if the polls are to be believed, he isn’t getting thanked for it. Inflation has made people feel poorer and this will be hard to overcome, no matter what CPI does from here.”
