The Personal Consumption Expenditure (PCE) Index, a crucial US inflation indicator closely watched by the Federal Reserve, showed further progress in the central bank’s efforts to combat price growth with high interest rates. Data released on Friday revealed that the PCE Index rose by a relatively modest 3% in the year to June, precisely as forecasted by economists polled by US media. This growth also matched the annual growth of 3% recorded in the Consumer Price Index (CPI) for June, which serves as a broader measure of inflation. In comparison to June, the PCE Index had experienced a 3.8% growth in May.
The retreat in inflation in the United States can be attributed to the Federal Reserve’s aggressive monetary tightening over the past 18 months. The central bank implemented one of its most robust monetary tightening strategies in history to curb runaway inflation caused by the coronavirus pandemic and the trillions of dollars of relief spending associated with it.
Since March 2020, the Federal Reserve has raised key lending rates by a total of 5.25%, significantly increasing rates from the previous 0.25%. Consequently, inflation measured by the CPI has significantly decreased from an annualized four-decade high of 9.1% in June 2022 to just 3% per annum in the last month.
As the Federal Reserve’s efforts continue to show progress in tackling inflation, the market and policymakers will closely observe economic indicators for signs of sustained improvement and possible impacts on the US economy. The significant retreat in inflation provides hope for a more stable economic landscape in the months ahead, but it also necessitates careful monitoring and consideration of the Federal Reserve’s next monetary moves.
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