The Consumer Price Index likely climbed at a moderate pace in June, which would be welcome news for Federal Reserve officials who are watching for further evidence that they have wrestled rapid inflation under control.
Overall inflation was probably 3.1 percent in June on an annual basis, down from 3.3 percent in May and the coolest reading since January, based on Bloomberg economist forecasts. After stripping out food and fuel prices for a sense of the underlying trend, the “core” price index is expected to have climbed 3.4 percent compared to year earlier, unchanged from the previous report.
Inflation is expected to remain moderate on a monthly basis. Economists forecast just 0.2 percent core inflation on a monthly basis, which would match the reading for May.
Fed officials have been watching for evidence that inflation is still coming down as they contemplate when to begin cutting interest rates. The central bank has held borrowing costs at 5.3 percent for the past year, a relatively high setting that is meant to cool the economy by weighing down demand for big purchases that require loans, like houses and cars.
Policymakers came into 2024 expecting to cut them several times this year, but a spate of stubborn inflation numbers early in the year prevented that pivot. Policymakers now mostly expect to make one or two rate reductions before the end of the year.
But after the early-2024 blip, price pressures seem to be moderating again. And Thursday’s inflation reading is poised to be markedly cooler than the 9.1 percent rate when inflation peaked at in 2022.
While the annual inflation numbers remain well above the 2 percent level that was normal before the pandemic — and could remain sticky in the coming months, per economist forecasts — that is partly for mechanical reasons. Inflation began to slow sharply around this time last year, which means that the data going forward are being compared to those more subdued year-ago readings. The so-called “base effect” makes it harder for the annual figures to decelerate as quickly.
Given that, Fed officials are likely to pay especially close attention to what is happening with inflation on a month-to-month basis and the recent several reports, as they try to understand how the price trend is shaping up.
“If we loosen policy too late or too little, we could hurt economic activity,” Jerome H. Powell, the Fed chair, said during congressional testimony this week. “If we loosen policy too much or too soon, then we could undermine the progress on inflation. So we’re very much balancing those two risks, and that’s really the essence of what we’re thinking about these days.”
While Mr. Powell avoided identifying a specific month when the Fed might begin to cut interest rates, he did little to push back on growing expectations that a reduction could come in September. Fed officials meet in late July, but few economists expect a move that early.
Mr. Powell said that he was “not going to be sending any signals about the timing of any future actions” during his remarks this week.