US inflation eases, but pressure remains on the Fed

The annual pace of US inflation eased to its lowest level in over two years, providing some relief. However, stubborn price gains could keep pressure on the US Federal Reserve Board (Fed) to consider additional interest-rate increases. The consumer price index rose 4% in May compared to the previous year, marking a significant change from April's 4.9% annual jump and the lowest rise since March 2021.

• Inflation has decelerated significantly from its peak of 9.1% in June last year. According to the Bureau of Labor Statistics, consumer prices increased by 0.1% on a monthly basis in May.
• President Joe Biden expressed optimism, stating the report is good news for hardworking families, as it showcases progress in tackling inflation while keeping unemployment low.
• The Fed's two-day policy meeting began yesterday. Although no interest-rate increase is expected this week after ten consecutive rises since March 2022, the door will likely remain open to further tightening if the data warrants.
• Today, the Fed will release fresh projections regarding the federal funds rate, inflation, economic growth, and unemployment. Some economists anticipate policymakers will advocate for at least one additional 25 basis-point rate rise in 2023.

This week could be fascinating in terms of economic announcements with interest-rate decisions by the European Central Bank and Bank of Japan to follow the Fed’s. Although there is a lot of data to digest in the short term, it’s important to monitor the duration of any bonds you may consider. Longer-duration bonds are generally more sensitive to interest-rate fluctuations.