Softening inflation data for May likely has bought the Federal Reserve at least a month, though not much more, before it has to figure out what to do next.
Following the CPI release Tuesday morning, markets priced in a 95% probability that the Fed will skip a hike at its two-day meeting concluding Wednesday, according to CME Group data .
"The latest consumer price inflation data doesn't change the Fed outlook for a June rate hike skip, but it illustrates the 'should I stay, or should I go' dilemma that the Fed faces when considering further rate increases," wrote Gregory Daco, chief economist at EY-Parthenon.
After this week's meeting, Fed officials will release their "dot plot" rate projections for the next few years, plus their collective outlook on inflation, GDP and unemployment.
The retreat on inflation, then, presents both an opportunity and a challenge for a Fed that was caught off guard by the big price surge.
Persons:
Gregory Daco, Jim Smigiel, Krishna Guha, Guha, Jerome Powell, Ian Shepherdson
Organizations:
Federal Reserve, Group, SEI, Evercore ISI, Tech, Pantheon
Locations:
EY