Mild inflation in the US in June enhances the chance of the Fed delivering just one more hike on interest rates, analysts say
Economists say FOMC’s pausing strategy gives time to the monetary authority to think over the effects of the tightening cycle.
The data for the American consumer inflation in June came in below the median estimates and the market, both in the headline index and in the core measures of the indicator. For economists, this benign trajectory of prices is positive for the Federal Reserve’s monetary policy decisions. Although the current disinflation does not change the projection that a new 0.25 basis point hike will be delivered at the end of the month, doubts begin to arise whether a new pause or even the interruption of the restrictive cycle could be adopted in September.
Andrea Damico, partner, and chief economist at Armor Capital, saw positive surprises in both goods and services inflation in June. She pointed out that the so-called services “super core”, which excludes housing fluctuations and is closely monitored by the Fed, was almost flat for the month (-0.01%). “This strongly supports our scenario of only one more interest rate hike, without the need for a second one, as the Fed indicated in the dots (projections),” she said.
