Topline
The Federal Reserve’s go-to inflation metric fell from a nearly three-year high in June as economic growth was slower than expected this latest quarter, according to federal data published Thursday, as persistent concerns about rising consumer costs are expected to push the central bank toward an interest rate hike.
Key Facts
Annual inflation was 3.3% in June, down from 3.4% in May in what was the highest annual rate since October 2023 (3.5%), according to core consumption expenditures index data reported Thursday by the Bureau of Economic Analysis.
That matched consensus economist estimates, according to FactSet, despite settling well above the Federal Reserve’s 2% target rate.
Real gross domestic product increased at an annual rate of 1.5% in the second quarter, the agency separately reported, falling well below Wall Street’s expectations of 2.1% annual growth.
The slowed economic growth came even as consumer spending—representing roughly two-thirds of all economic activity—accelerated at a 3.2% rate.
big number
59.2%. Those are the odds priced in by traders for the Federal Reserve raising interest rates in September, according to CME Group’s FedWatch tool. Those odds gradually increase through the end of the year, hitting 71% in October before reaching 83.5% in December.
will the federal reserve hike interest rates?
Dissent among central bank officials suggests a growing preference for raising interest rates in the near term. Dallas Fed president Lorie Logan, Minneapolis Fed president Neel Kashkari and Cleveland Fed president Beth Hammack each dissented in Wednesday’s vote to hold interest rates between 3.5% and 3.75%, instead arguing for a quarter-point increase. During the Federal Open Market Committee’s June meeting, “many” participants said interest rates would be “within or slightly below” their current range by the end of the year, despite “many other” officials assessing that interest rates would likely be higher.
key background
Fed Chair Kevin Warsh has pointed to the central bank’s zero tolerance for what he called “persistently elevated inflation.” The Federal Reserve has a “resolute commitment to restoring price stability,” and reining in inflation is its foremost objective, Warsh has said. He has similarly praised the economy’s resilience, despite a conflict in the Middle East disrupting trade and consumer prices, calling the U.S. “impressive.” A boost in consumer spending comes as more businesses bump up their investments in AI, and Warsh has noted the “most striking” feature of the economy is the strength of its business investment.
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