Stagnation of the CPI in the United States in May reinforces confidence in the Fed’s control of inflation

(Reuters) – The U.S. consumer price index was unexpectedly unchanged in May amid falling gasoline prices, but inflation likely remains too high for the Federal Reserve, which concludes its regular policy meeting later Wednesday, could start cutting interest rates before September.

The stable figure reported by the Labor Ministry on Wednesday follows a 0.3% increase in April. In the 12 months to May, the CPI rose 3.3% after rising 3.4% in April. Economists polled by Reuters had forecast a slight rise of 0.1% and a gain of 3.4% year-on-year.

Excluding the volatile food and energy components, the CPI rose 0.2% in May, less than the 0.3% increase recorded in April. Year-over-year, core CPI rose 3.4%, the smallest 12-month increase since April 2021, following a 3.6% increase in April. Inflation continues to exceed the 2% target set by the US central bank.

MARKET REACTION:

SHARES: US stock index futures extended their gain to +0.9%, pointing to a strong opening on Wall Street. BONDS: The 10-year US Treasury yield fell to 4.293% and the two-year yield fell to 4.71%FOREX: The dollar index extended its decline to -0.7% and the euro extended its initial increase at +0.74%

COMMENTS:

MONA MAHAJAN, SENIOR INVESTMENT STRATEGIST AT EDWARD JONES, NEW YORK

“It’s nice to see the trend moving in the right direction again after a first quarter with warmer-than-expected inflation numbers. We are now seeing numbers for May that are colder than expected. Some of the Underlying trends look positive… It appears that even areas like airfares have moderated.

“When we look at overall energy prices, they also appear to have seen a nice month-over-month decline.”

“Net net, it resets the clock for the Fed. They’ll still like to see probably two or three numbers move in the right direction before they gain the confidence they need to really start signaling a rate cut, but I think that this is the first step in this direction.

“We’re still waiting for housing and rents to come down significantly, which could be another driver going forward. And we’re still watching the job market and wage gains to see if that calms down. We might get a better services inflation. We “I think there are two types of catalysts on the horizon that could bring inflation down, but overall it’s a good first step in that direction.”

ASHWIN ALANKAR, HEAD OF GLOBAL ASSET ALLOCATION, JANUS HENDERSON INVESTORS

“Today’s CPI weakness puts the Fed back in the driver’s seat to move toward preemptive tapering later this year to ensure the recession remains distant. However, at this point, there is no greater objective than the credibility of the Fed to keep inflation expectations anchored and economic activity robust and favorable to financial markets.

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“Until further evidence of disinflation is seen, both in terms of breadth and depth, the current weakness argues in favor of preemptive tapering rather than a pivot in Fed policy towards an accommodating policy.”

ART HOGAN, CHIEF MARKETS STRATEGIST, B. RILEY FINANCIAL, NEW YORK

“It’s…