10 to 16 June: Benign inflation puts fuel to the fire for the Fed to cut the interest rate

Inflation in the US was 1.8% YoY in May, coming in below the consensus forecasts. Consumer price inflation slowed from the 2% pace recorded in April, which coincided with the Federal Reserve’s 2% inflation target. In addition, in core CPI inflation (a gauge that excludes volatile prices, such as fuel, etc.) also slowed to 2% YoY. Benign inflation combined with slowing growth and escalating trade tensions could increase pressure on the Federal Reserve to bow to the market and cut interest rates this year. The market now takes it for granted that the Jerome Powell-led FOMC will slash the Fed funds futures by 25bp by the end of July and initiate an easing cycle. Fed policymakers meet this week, where a rate cut is not expected just yet, but the post-meeting communication will be one of the most scrutinised events this year.

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