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NEW YORK (Reuters) – U.S. consumer prices rose moderately in May, leading to the smallest annual increase in inflation in more than two years, though underlying price pressures remained strong, supporting views that the Federal Reserve would keep interest rates unchanged on Wednesday while adopting a hawkish posture.

The Consumer Price Index (CPI) increased 0.1% last month as gasoline prices fell, the Labor Department said on Tuesday, after rising 0.4% in April. In the 12 months through April, the CPI climbed 4.0%. That was the smallest year-on-year increase since March 2021 and followed a 4.9% rise in April. Economists polled by Reuters had forecast the CPI gaining 0.2% last month and increasing 4.1% year-on-year.

MARKET REACTION:

STOCKS: U.S. stock index futures extended a bit higher and were last up 0.33%, pointing to a firm open on Wall Street BONDS: U.S. Treasury yields fell, with 2-year note last at 4.51%, and the 10-year note at 3.697%FOREX: The euro extended to a 0.52% gain against the U.S. dollar, while the dollar index was off 0.444%

COMMENTS:

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN

“Unlike the employment situation, which continues to defy expectations, inflation numbers came in consistent with expectations. Not only should the Fed skip tomorrow’s hike, they should just skip the entire meeting. The data ever so slightly tilts things towards this not just being a skip, but a full-blown hold.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“The data is in line, which is good news, especially in terms of inflation year over year, and you can see that the yields are coming down, and the dollar is coming down.”Markets are moving higher and stocks are also moving higher because this is good news for markets and it means the Fed will likely stay pat on rates, skip this month, and leave the door open for rate hikes in July based on data. So good news overall but still data dependent.”

(Compiled by the Global Finance & Markets Breaking News team)

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