US Inflation Slows Down to 3%, Defying Predicted Figures

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June's Consumer Price Index (CPI) data from the United States Bureau of Labor Statistics (BLS) reveal a downturn in inflation, settling at 3%. This figure, being a step down from the preceding 4% in May and 4.9% in April, underscores a continuous and encouraging downtrend.

Uncertainty Lingers Over Federal Reserve's Response to Latest Inflation Statistics

Since March 2022, the Federal Reserve has systematically hiked interest rates, resulting in 10 successive adjustments. This move has propelled the benchmark federal funds rate into a target zone between 5 and 5.25 percent.

The Federal Reserve's response to the recently released inflation data remains shrouded in uncertainty. Analysts will be keenly watching whether they choose to hike interest rates further or adopt alternative strategies to tackle the evolving situation.

In a conversation with CNN, Bank of America's CEO, Brian Moynihan, projected that the U.S. could reach its inflation target of 2% by 2025. Similarly, the Federal Reserve's current forecasts anticipate inflation to be around 2.1% by 2025, marking a substantial decrease from today's 4.4%.

Despite a Lower-Than-Expected Increase, 'Core' Prices Persist at High Levels

Inflation in the U.S. climbed at a pace below forecasts in June, however, the so-called "core" prices persistently stayed at high levels. This indicates that the Federal Reserve may be prompted to further elevate interest rates in the upcoming policy discussion.

The Bureau of Labor Statistics' scrutinized consumer price index registered an annual increase of 3.0%, a dip from May's 4.0%. Financial analysts had anticipated an increase of 3.1%.

Inflation now stands at the lowest point in over two years, representing a sharp decline from the peak of 9.1% achieved last June.

Sequentially, the CPI showed a 0.2% growth, a small rise from 0.1% in May, against the forecast of 0.3%.

In the meantime, the surge in core CPI, which excludes more unpredictable elements such as food and energy, slightly eased to 4.8% yearly and 0.2% monthly. Both these figures were expected to fall to 5.0% and 0.3% respectively.

Despite the headline inflation number inching towards the Federal Reserve's 2% target, the stubborn core inflation figures have sparked conjecture that the central bank will increase interest rates later this month, following a pause in the rate-hike cycle in June. As per's Fed Rate Monitor Tool, a quarter-point increase in borrowing costs at the July meeting is more than 91% likely.

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