Stable U.S. inflation expectations as Fed may lower interest rates

From RSM US: 2024-06-21 12:00:19

American inflation expectations remain stable despite recent price shocks. The Fed’s preferred measures show inflation forecasts in line with long-run averages: the five-year forward, five-year breakeven rate at 2.25% and the five-year forward breakeven index at 2.2%. Read more on inflation and the economy from RSM’s insights.

The Fed will review the May personal consumption expenditures index on Friday, with the year-over-year PCE currently at 2.7%. Forecasts predict 0.1% monthly growth and 2.6% annual growth. As inflation trends back to 2%, the Fed may lower interest rates to 4.75% to 5% by year-end without disrupting expectations.

In the last two decades, the Fed’s inflation measures have averaged 1.94% and 2.33%. With cooling growth and inflation, the Fed could lower the federal funds rate from 5.25% to 5.5%. Forecast suggests two rate cuts this year and four next year, reaching 3.75% to 4% by the end of 2022, in line with the 2% target.



Read more at RSM US: U.S. inflation expectations are well anchored as Fed nears decision