Fed gets heartening inflation data, but slow road ahead
inflation is cooling, news that helped ease doubts over how well monetary policy is doing its job after stronger-than-expected price increases earlier in the year.
But while progress on a month-to-month basis is increasingly clear, the road to the Fed's 2% inflation goal — measured in year-over-year terms — is likely to be long, complicating discussions about when to cut interest rates.
«We are getting evidence that (policy) is tight enough,» San Francisco Federal Reserve Bank President Mary Daly told CNBC in an interview just minutes after a Bureau of Economic Analysis report showed inflation did not rise at all from April to May. «It's really challenging to look anywhere and not see monetary policy working: we have growth slowing, spending slowing, the labor market slowing, inflation coming down.»
At the same time, Friday's inflation data shows there's still a lot more progress needed. From a year ago, the personal consumption expenditures price index rose 2.6%. The Fed's target is 2%.
The Fed has kept its policy rate in the 5.25%-5.5% range since last July when it delivered what U.S. central bankers say will likely prove to be the last rate hike of an aggressive campaign begun in March 2022 to fight high inflation.
The central bank has said no rate cuts will be appropriate until policymakers gain more confidence that inflation is on a sustainable path to their 2% goal.
Traders on Friday bet that the latest inflation figures will firm up that confidence. Short-term interest-rate futures are now pricing in
