U.S. consumer prices unexpectedly remained unchanged in May as gasoline prices fell, but inflation may still be too high for the Fed to start cutting interest rates before September amid continued strength in the labor market.
Consumer price index data released Wednesday by the U.S. Department of Labor’s Bureau of Labor Statistics remained unchanged, with consumer prices rising 0.3% in April. CPI has been trending downward since reliable data became available in February and March. Price pressures are likely to continue to ease as major retailers including Target (TGT.N) slash prices on items from food to diapers with new tabs to appeal to inflation-weary consumers .
Although annual gains in consumer prices have slowed from a peak of 9.1% in June 2022, inflation remains above the Fed’s 2% target. The government reported last week that job growth accelerated in May and wages rose, but the unemployment rate rose to 4%. Fed officials are expected later Wednesday to keep the benchmark overnight rate at its current range of 5.25%-5.50%, where it has been since July.
Since March 2022, the Federal Reserve has raised policy rates by 525 basis points. Financial markets expect the Fed to begin an easing cycle in September, although that belief is waning. Some economists favor a rate cut in December, but others are less sure borrowing costs will be lower this year.
