The Fed has held the federal funds rate steady at a target range of 4.25% to 4.50% since last month. — Bloomberg
PETALING JAYA: With core inflation still above the US Federal Reserve’s (Fed) 2% target, rates are likely to stay on hold this month although markets are anticipating a quarter percentage point cut in September, according to MIDF Research.
The Fed has held the federal funds rate steady at a target range of 4.25% to 4.50% since last month.
Consumer prices in the United States grew at a slightly faster pace of 2.7% year-on-year (y-o-y) in June compared with May’s 2.4%, marking the fastest level since February and in line with market consensus.
The upward price pressure was driven by higher prices for food, transportation services and used vehicles.
There was a slower rise in prices for shelter, while energy prices fell at a slower rate by 0.8% y-o-y (May: increase of 3.5% y-o-y) with continued softer decline in petrol (down 8.3% y-o-y) and fuel oil prices (down 4.7% y-o-y).
However, prices for natural gas remained elevated – an increase of 14.2% y-o-y compared with May’s rise of 15.3% y-o-y.
The research house said headline inflation in the world’s largest economy rose slightly quicker from last month by 0.3% month-on-month (m-o-m) against May’s 0.1%, hitting a five-month high.
The higher reading was driven by shelter and food costs which rose by 0.2% m-o-m. Petrol prices increased by 1% m-o-m, whereas food costs increased 0.3% m-o-m.
Underlying price pressures were steady, with core consumer price index (excluding food and energy) accelerating slightly to 2.9% y-o-y after holding at 2.8% y-o-y for three consecutive months, the lowest since 2021, it noted.
“The latest inflation reading points to the onset of the long-expected rise in prices stemming from tariff effects. The anticipated higher price gains in goods may be partially offset by more moderate increases in service costs, helping to ease concerns over broad-based inflation.
“Weaker demand continues to cap price growth in services-related categories,” the research house added.
