Fed poised to raise rates despite cooled inflation

The Federal Reserve appears set to resume interest-rate hikes in July after data showed inflation slowed sharply in June but is still above the central bank’s target.

The consumer price index, which excludes volatile food and energy prices, rose 4.8% in June compared with a year earlier and 5.3% compared with the previous month.

This was the smallest increase since late 2021 and could give the Fed room to pause rate increases after its July meeting if the trend continues.

Richmond Fed President Thomas Barkin told Reporters on Wednesday that the growth in US consumer prices is still too quick even as it slowed in June, reiterating the central bank’s commitment to restoring inflation to its 2% goal.

“Inflation is too high. If you back off too soon, inflation comes back strong, which then requires the Fed to do even more," Barkin noted.

Minneapolis Fed President Neel Kashkari said banks must be prepared for higher interest rates in case policymakers need to lift rates further to combat entrenched inflation.

“In such a scenario, policymakers could be forced to choose between aggressively fighting inflation or supporting bank stability," he noted.

Source : Argaam