The recent economic data in the United States, particularly concerning producer and consumer prices, has prompted analysts at Bank of America to predict a potential easing in inflationary pressures. This assessment follows reports showing unexpected declines in both producer prices in May, largely attributed to lower gasoline costs, and softer-than-expected consumer prices the day prior. These developments suggest a trend towards disinflation, according to the Bank of America analysts.
Looking ahead, the analysts anticipate that the Personal Consumption Expenditures (PCE) price index, a key metric closely monitored by the Federal Reserve, will reflect this easing trend when it is released on June 28. They project that the core PCE, which excludes volatile items like food and fuel, will show a modest increase of 0.16% month-on-month in May. This is expected to result in a year-on-year decrease in the core PCE inflation rate from 2.8% in April to 2.6% in May.
Similarly, they predict the headline PCE reading to reflect a 0.06% increase month-on-month and a year-on-year inflation rate of 2.6% for May, down slightly from 2.7% in April. Despite these projected slowdowns in inflation rates, the analysts do not foresee the Federal Reserve altering its recent outlook drastically. The Fed had initially indicated the possibility of three interest rate cuts in 2019, but concerns have emerged among policymakers regarding persistent inflation levels above their 2% target.
The Bank of America analysts suggest that while a rate cut could be implemented as early as September, a more likely scenario is a reduction in December. They emphasize that the Federal Reserve will likely require sustained favorable inflation data over several months before gaining enough confidence to proceed with monetary easing measures.
In summary, while recent data indicates a potential easing in inflation pressures in the U.S., the Federal Reserve is expected to maintain a cautious approach to monetary policy adjustments, awaiting more conclusive evidence of a sustained downward trend in inflation before making significant changes.