Will the Federal Reserve raise interest rates again?

Inflation eased to 3% in June – the 12th straight month of decline.

Forecasts say 12-month consumer price inflation will ease from 4% in May to 3.1% in June — more than 1 percentage point below the Federal Reserve’s 2% inflation target.

The decline came as gas prices fell to $3.54 compared to $4.66 a year ago, according to separate data from AAA.

By one measure, the U.S. economy is already close to slowing the rate of inflation that has plagued it for the better part of two years.

Stock prices initially responded positively to the report, All three major indices grow louder Before the market opens at 9:30 am.

But the rest of the story for much of the economy — that is, the “core” inflation figure that reflects everything but food and energy prices — may be more difficult for consumers to bear, says Riccardo Trezzi, a lecturer at the University of Geneva. Founder of a consulting firm focused on core inflation.

In June, the key figure reached 4.8%, compared with 5.5% in May, the Bureau of Labor Statistics said on Wednesday.

“If you want a hit [2% core inflation] “I suspect the target, unfortunately, is unemployment,” Dresi said.

The unemployment rate in the US has fallen dramatically from 5.9% in June 2021 to the end of the year. Since then, it has averaged 3.5%, up from 3.6% last month. But central bank Keep believing The unemployment rate will rise to 4.5% by 2024.

The reason the labor market has proven so resilient is because the U.S. government and central bank took aggressive steps to support the economy during the Covid-19 pandemic, and the momentum of those steps continues to be felt, Dresi said.

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The central bank tried to reverse that momentum by raising interest rates and making goods and services more expensive by reducing demand and investment. However, those interest rate hikes will take time to fully reflect in the broader economy.

Dresi compared the situation to trying to turn an ocean liner.

“You hit the brakes, but nothing really happens for a certain number of quarters,” he said. “There we are.”

A “soft landing” — reducing inflation without significant job losses — has effectively already been achieved, Trezzi said, and the 9% inflation rate the U.S. saw in June 2022 is now a distant memory.

It’s too early to celebrate

Rough waters may still lie ahead, Trezzi said, with the 12-month core inflation rate stagnating above 5% after decades of averaging 3.6%.

“I doubt it can be done without putting a burden on the labor market,” Trezzi said of cutting that key inflation number.

Among those who share this view is former Treasury Secretary Larry Summers, who accused the Fed of underestimating inflation over the past two years — and said it would need to raise interest rates more aggressively to bring inflation fully under control.

“They’re surprised by what’s happened to inflation, and as they’re surprised by what’s happening to inflation and the strength of the economy, they’re going to be surprised by what they’re going to do to interest rates.” Summers tweeted.

Not everyone agrees with this bleak outlook. Speaking to CNBC On that day FridayChicago Federal Reserve President Austin Goolsbee suggested the economy may be on a rare “golden path” to achieving lower rates of inflation without a recession.

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“The central bank’s main goal right now is to reduce inflation. We’re going to succeed at that, and to do that without a recession would be a success,” Goolsbee said.Noise in the street” interview. “That’s the golden path, and I feel like we’re on that golden path. So hopefully we’ll put the recession off forever.”

If one takes a closer look at what is actually driving the high inflation data, there are two main culprits: used car prices and airfare prices, according to Omair Sharif, founder and president of research and analysis firm Inflation Insights.

Prices in the auto market have risen due to supply chain issues — and, to a lesser extent, labor costs — but are now showing signs of stabilization, Sharif said.

The same is true for airfare, where jet fuel costs have dropped dramatically and air carriers now build larger planes and fly more frequently on popular routes to handle growing demand.

In June, airfares fell 18.9% year-on-year and 8.1% between May and June alone.

“I don’t think it should take the pain away,” Sharif said, referring to the victory in the fight against inflation. Achieving the 2% inflation target won’t happen until late 2024, he said, adding that “if you look at what’s driving inflation, transportation services like cars and airplanes will always be the big part.”

More than two years into the current inflation war, debate continues about its causes and likely duration — as well as questions about how long monetary policy will take to control it.

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“Neither consumers nor the Federal Reserve have produced the champagne yet,” Mark Hamrick, a senior economist at Bankrate, said in a note on Monday: “Americans have pushed back the worst of inflation, but the battle is not over. Won.”

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