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Potential impact of trade tensions on Fed policy
Deputy Editor of the WSJ Editorial Board, James Freeman, Danielle DiMartino Booth, Former Dallas Fed Advisor, and Nicole Lamb-Hale, Former Assistant Secretary of Commerce, on the Impact of Potential Rates and Declines Federal Reserve interest rates on markets and the economy.
Earlier this month, Federal Reserve Chairman Jerome Powell had heavily influenced the monetary policy he had been waging since the beginning of the year: the US central bank, he hinted, was willing to reduce interest rates if inflation persisted low.
Two weeks later, the Bureau of Labor Statistics published its May inflation data, revealing that the consumer price index for all urban consumers remained relatively stagnant, as prices had risen than 0.1%. This was the smallest increase in inflation since January.
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"Inflation rates have barely gone down in May," said Curt Long, chief economist and vice-president of research at the National Association of Credit Union, which the federal government provides.
The CPI takes into account the weighted prices of consumer goods and services, such as transportation, food and medical care. This was the fourth consecutive month that after the elimination of energy and food, base prices were up only 0.1%. The indexes of used cars and trucks, recreational and motor insurance are some of those that have fallen during the month.
Wall Street has closely monitored the metric – which can be used to determine if the economy is slowing – looking for signs that borrowing costs could be reduced as soon as possible. This low reading prompted the US central bank to once again demand a lowering of the federal funds policy rate.
Coupled with low inflation in PCE – the Fed's preferred measure because it excludes food and energy prices – rose by 0.31% seasonally adjusted in April compared to March and 1 , 5% compared to the previous year. It remains well below the Fed's 2% target range.
Powell has already pointed out the importance of the 2% inflation range, which corresponds to a healthy economy.
"Other FOMC members have started openly to consider a rate cut in order to bring price growth back to the goal," said Long. "NAFCU expects the combination of low inflation, a slowdown in economic growth and current business risks will prompt a rate cut in the third quarter."
The Federal Open Market Committee will hold a two-day policy development meeting from 18 to 19 June.
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Economists generally expect the Fed to keep its rates in the current range of between 2.25% and 2.5%, although the CME's FedWatch tool, which analyzes the probability of movements of rate for upcoming meetings of the Fed, currently predicts a 25% probability of rate reduction. June. Most traders – 67% – believe that policymakers will lower their rates from 2.00% to 2.25% at their July meeting.
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