Breaking Economic Updates:
Hello, Denver! We’ve got some critical updates today on the economic front, so let’s dive right in.
First up, the Federal Reserve held its FOMC meeting, and they decided not to cut interest rates as anticipated. We’ve been tracking this closely, and the significant news is that they’ve revised their projection. Initially, they planned for three rate cuts this year, but now they’ve scaled it back to just one. This is a substantial shift, reflecting less confidence in reaching their inflation goals soon.
The current Federal Reserve interest rate stands at 5.5%. The revised forecast suggests a single rate cut, bringing it to 5.25% by the end of the year. Previously, they projected it would drop to 4.75% with three cuts. This adjustment indicates their cautious stance on inflation, which needs to be moving steadily toward their 2% target before further cuts are made.
Looking ahead to 2025, the Fed is projecting four rate cuts. However, given their track record, there’s skepticism about these predictions. The unemployment rate is expected to be at 4% by the end of this year—a number we’ve already hit—so there’s minimal room for deviation. Next year’s forecast is slightly higher at 4.2%, showing little wiggle room again.
On the inflation front, the Fed’s preferred measure, PCE core inflation, was expected to fall to 2.6% by year’s end but has been revised up to 2.8%. This upward revision indicates higher inflation expectations.
Another significant event today was the release of the CPI inflation report. For May, CPI headline inflation is at 3.3%, up from 3.1% in January. This lack of significant progress means inflation is still above the Fed’s 2% target, which explains their hesitation to cut rates.
Core inflation, excluding volatile food and energy prices, showed some progress, dropping to 3.4% from 3.9% in January. However, overall inflation remains a concern, especially as it affects everyday costs.
Energy prices are a prime example, having swung dramatically from a 4.6% decrease in January to a 3.7% increase year-over-year now—an 88.3% turnaround. Food prices are up 2.1% year-over-year, and while this figure is reported by the government, it’s often met with skepticism from those who feel their grocery bills tell a different story.
Shelter inflation is another critical issue, sitting at 5.4%, barely moving from 5.5% in the last report. Housing costs remain high, making both renting and buying increasingly unaffordable. This is particularly troubling since shelter inflation is rising faster than wages, exacerbating the affordability crisis.
Services inflation, a key concern for the Fed, is holding steady at 5.3%. This area is crucial because wage increases above 2% can push inflation higher, complicating the Fed’s efforts to manage it.
To sum up, today’s updates highlight why the Federal Reserve decided against cutting interest rates. Inflation is still too high, and until it’s under control, significant rate cuts are unlikely. We’ll keep you updated with more insights and analysis in our next video, where we’ll break down the FOMC press conference and what it means for our local economy. Stay tuned, Denver, and thank you for your continued support!
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