The most important news of the week will be the U.S. inflation data expected on Wednesday. The question that accompanies it is whether inflation rates will decline further.
Most forecasts point to a significant slowdown in U.S. consumer price inflation in June, but core inflation is likely to remain strong, giving the Federal Reserve additional incentive to resume rate hikes at its July meeting.
On Wednesday, the Bureau of Labor Statistics will release its latest report on the U.S. consumer price index, which is expected to show headline inflation at 3.1 percent in June, year-on-year, according to economists polled by Bloomberg. That would represent a significant improvement from May’s 4 percent figure and would be the lowest rate since March 2021.
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But the core consumer price index, which excludes the volatile food and energy sectors, is expected to be 5 percent year-on-year, slightly below the previous month’s rate of 5.3 percent.
Core inflation has remained steeply high, even as the headline figure has fallen, and is likely to be more important for the Federal Reserve when it meets in late July.
This headline reading that is higher than — or in line with — economists’ expectations may reinforce the view that the Federal Reserve will resume raising interest rates again this month, having paused in June for the first time since starting its historic campaign to raise interest rates in March last year.
On Friday, Chicago Federal Reserve President Austan Goolsbee said policymakers were on the “golden path” of easing price growth without causing a recession in the world’s largest economy, as data that day showed a slowdown in job growth meaning the money market remains strong.
Goolsbee said the unanimous consensus of almost all Federal Open Market Committee (FOMC) participants is one or two more increases this year, which he said could come at any of the upcoming meetings in the second half of the year. The next policy decision will be on July 26.
But U.S. Treasury Secretary Janet Yellen does not rule out the risk of an economic recession in the United States, saying it is “appropriate and normal” for moderate growth and that inflation remains very high.
Yellen said in a transcript of an interview with CBS that recession risks are “not quite far from the table.” Speaking from Beijing after meeting with top Chinese leaders, she said monthly job growth was slowing as expected after remaining at a “high level.”
“We have a healthy economy, a big labor market, very high inflation, and it’s a concern for us and the American people, but it’s decreasing over time,” she said. I hope, and I think, that we are on a path to reduce inflation in the context of a healthy labor market, and the data I’ve seen suggests that we are on that path.”
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