Inflation risks still threaten to steal the show as the Federal Reserve heads into its highly anticipated June meeting. Some analysts aren’t convinced that the Fed’s 2025 median dot will budge because of these continuing inflation worries. Hopefully a couple members of the Federal Reserve will reconsider their rosy projections. They might prefer to push for deeper cuts to rates.
The June Federal Open Market Committee (FOMC) meeting will play a crucial role in shaping the Fed’s stance on inflation, growth, and potential interest rate adjustments. Markets are anticipating two full interest rate cuts this year. The FOMC’s careful review of incoming data will do most of the work in guiding its decisions.
Recent economic indicators paint a mixed picture. As Kathleen Madigan pointed out, the recent rise in weekly jobless claims is the clearest sign of weakness hitting the labor market. That was sharply undermined by the April payrolls report, which showed far more robust job growth than was expected. These types of discrepancies serve to emphasize the challenges that the Fed is going to have in threading this needle in today’s economic environment.
The big story in the May inflation report was all of the unexpected changes that started appearing. Recovery tariffs from the last administration proved transparent. At the same time, inflation figures shocked us by barely being lower than expected. The core subindex, which strips out the more volatile food and energy prices, rose just 0.1% MoM. This increase was 0.2 percentage points short of expectations, which were for a 0.3% MoM increase. This major miss is the third time ever seen and makes one wonder what kind of downstream increase in pricing pressure it implies.
As the June meeting draws near, FOMC members will have to consider these contradictory signals at face value. The divergence between jobless claims and payroll reports, coupled with subdued inflation data, necessitates a thorough evaluation of both inflationary trends and economic growth factors.