US Inflation Eases More Than Expected In May, Boosts 2024 Rate Cut Prospects Ahead Of Wednesday's Fed Meeting

Author: Piero Cingari | June 12, 2024 08:35am

Good news for the average U.S. consumer as the annual inflation rate slowed more than economists expected in May, brightening the outlook for interest rate cuts this year ahead of a pivotal Fed meeting later on Wednesday.

This marks the second consecutive inflation report to come in lower than expected, bolstering hopes for a gradual return to the Fed’s 2% target.

May Inflation Report: Key Highlights

The annual CPI inflation rate fell from 3.4% to 3.3% in May, below than the median economist projection of 3.4%. According to Econoday, the economist consensus ranged from 3.3% to 3.5%.
On a monthly basis, the overall CPI inflation stalled, decelerating from the prior 0.3% growth and coming in below expectations of 0.1%.
The energy index dropped by 2.0% over the month, driven primarily by a 3.6% decline in the gasoline index.
More than offsetting the decline in gasoline, the shelter index increased in May, rising by 0.4% for the fourth consecutive month.
Excluding food and energy, the core annual CPI inflation rate softened from 3.6% to 3.4%, below than the expected 3.5%.
On a monthly basis, the core CPI inflation advanced at a 0.2% rate, down from April’s 0.3% and below expectations of 0.3%.

Market Reactions

Before the inflation report, traders had assigned a 54% chance of a rate cut in September 2024, factoring in a cumulative 43 basis points of cuts by year-end. The cooler-than-expected reading will likely raise expectations for a September rate cut and may lead market participants to bolster bets on a double rate cut by year-end.

Treasury yields fell across the board, with the policy-sensitive 2-year Treasury yield down by 12 basis points to 4.71%.

Futures on major U.S. equity indices rallied during premarket trading, with contracts on the S&P 500 up by 0.8 percentage points at 08:32 a.m. ET. Futures on the tech-heavy Nasdaq 100 rallied 1%.

Wall Street closed Tuesday’s session in the green, with the SPDR S&P 500 ETF Trust (NYSE:SPY) and the Invesco QQQ Trust (NASDAQ:QQQ) up 0.24% and 0.69%, respectively.

Traders are now eagerly anticipating the Federal Reserve Open Market Committee (FOMC) meeting. The statement and new macroeconomic projections will be released at 2:00 p.m. ET, followed by Fed Chair Powell’s press conference at 2:30 p.m. ET..

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Tune in to Fed Chair Powell’s press conference at 2:30 PM following the FOMC decision. Watch it live below.