Inflation accelerated in May to its highest rate in three years, clocking in at 4.2%, the Bureau of Labor Statistics reported on Wednesday.
It was the first time since April 2023 that inflation climbed above 4%, CNBC noted. The monthly figure rose by a seasonally adjusted 0.5%. Both figures were in line with expectations.
The outlet added that, despite the headline increase, the so-called core CPI, which excludes more volatile components like food and energy, climbed 0.2% compared to April and 2.9% in an inter-annual basis.
However, energy prices remain high as a result of the war with Iran, and could increase further after President Donald Trump said on Wednesday that he may order strikes against Iranian infrastructure because Tehran is taking too long to reach a deal to end the war.
Fox News reporter Trey Yingst said he spoke to Trump, who told him he could "keep going" after ordering strikes against Tehran over the downing of a U.S. helicopter close to the Strait of Hormuz.
The journalist went on to say Trump told him Tehran "had a chance to sign a deal and survive" and is "getting close to ordering new strikes against Iranian power plants and bridges" because he believes the "Iranians are tapping the United States along."
The combination of different factors have led economists surveyed in a recent poll no longer expect the Federal Reserve to cut interest rates this year.
The majority of respondents of the Reuters poll gave that answer, with interest rate futures now also pricing a rate hike by the end of the year. The high inflation reading could strengthen their argument to expect a rate hike.
Another factor is a stronger-than-expected jobs report, which showed the labor market remained resilient. The U.S. economy added 172,000 jobs in May while the unemployment rate held steady at 4.3%, according to data released by the U.S. Bureau of Labor Statistics. Job gains were concentrated in leisure and hospitality, local government and health care. Bureau of Labor Statistics data showed employment in financial activities declined during the month.
The survey also noted that the new chair of the Federal Reserve, Kevin Warsh, would struggle to build consensus to implement a rate cut should he seek so.
Tom Porcelli, chief economist at Wells Fargo, told Reuters that "it's going to be very hard for the Fed to justify any action at this point and in the foreseeable future. It will be incredibly difficult to get a consensus of Fed officials to go along with the idea of cutting rates."
Goldman Sachs has also pushed its forecast for a rate cut into 2027. The bank now expects the Fed to deliver two rate cuts in June and December 2027, instead of December 2026 and March 2027.
Originally published on IBTimes
© Copyright IBTimes 2024. All rights reserved.
