Federal Reserve Chair Jerome Powell speaks during a news conference following a Federal Open Market Committee meeting, June 14, 2023, at the Federal Reserve Board Building in Washington, D.C.
Jacquelyn Martin/AP, FILE
Newly released inflation data on Wednesday will shed light on whether the U.S. economy continued its months-long cooling off period regarding price increases in June. This data brings further relief to consumers and positive news for the Federal Reserve as it contemplates an additional interest rate hike.
A recent government report indicated a slowdown in hiring last month, yet the job market remained robust. The report suggests that the economy experienced a gradual decline in June, aligning with the central bank’s efforts to reduce activity and control prices while avoiding a recession.
In May, consumer prices rose by 4% compared to the previous year, surpassing expectations and raising hopes for a return to normal inflation levels. However, this latest reading still exceeds the Federal Reserve’s target of 2% inflation.
Economists surveyed by Bloomberg anticipate a considerable decline in inflation for June, projecting a rate of 3.1%. If this materializes, it would represent the lowest recorded figure since March 2021.
The Federal Reserve is scheduled to meet in two weeks to consider whether to intensify its measures against inflation through an additional rate hike.
Last month, the central bank paused a series of aggressive interest rate increases, putting an end to a 15-month stretch of 10 consecutive hikes. However, most members of the decision-making committee believe that at least one more rate hike will be necessary this year, according to Fed Chair Jerome Powell’s remarks immediately following the pause announcement.
During a conference organized by the European Central Bank in Sentra, Portugal, Powell expressed optimism about the U.S. economy and downplayed the likelihood of a recession. He acknowledged the potential for a recession but stated that it was not the most probable outcome, highlighting the resilience and modest growth of the U.S. economy.
Last Thursday, the Commerce Department revealed a significant upward revision, indicating that the U.S. economy experienced more substantial growth at the beginning of the year than initially estimated. Gross domestic product (GDP) increased at an annualized rate of 2% for the three-month period ending in March, a notable jump from the previous estimate of 1.3%.
The jobs report on Friday demonstrated robust performance, with U.S. employers adding 209,000 workers in June, although at a slower pace compared to the previous month. Wage growth, measured by average hourly earnings, remained steady at 4.4% compared to the same month the previous year. The Federal Reserve closely monitors wage growth as part of its inflation management strategy, as higher pay can lead to price increases by employers.
Powell emphasized the strength of the labor market, stating that it has a significant impact on the economy. He expressed confidence in finding a better balance without a severe downturn.
In conclusion, the latest inflation data paints a picture of a significant slowdown in price increases within the U.S. economy. This brings relief to consumers and provides favorable circumstances for the Federal Reserve to consider its next steps in managing interest rates and inflationary pressures. The resilient labor market and positive economic indicators contribute to the overall outlook of a balanced economic environment.