How does inflation affect the US economy?

The Federal Reserve meeting first released the Consumer Price Index, which measures the average change in prices paid by urban consumers over time for a basket of consumer goods and services. The May CPI showed no increase in inflation, which exceeded the expectations of many market analysts. This inflation report played an important role in the initial rise of the stock market.

Firstly, inflation is a key economic indicator closely monitored by central banks around the world. When inflation is under control, it can bring about economic stability, which in turn benefits the stock market. Federal Reserve officials stated on June 12th that inflation in recent months has further decreased towards their target level, and they hinted that they expect the benchmark interest rate to be lowered only once this year. The reason is that although inflation has cooled down in the past two months, it remains high. The government's report shows that inflation in the United States eased for the second consecutive month in May, a sign that hopes of price increases earlier this year have passed. If this trend continues, it may push the Federal Reserve closer to lowering interest rates. The current interest rate is the highest in 23 years for the Federal Reserve.

Secondly, the Federal Reserve has also released its interest rate forecast for this year. Contrary to the expected three rate cuts in March, the new forecast shows only one rate cut. This revised forecast suppressed the initial enthusiasm of the market, leading to a cooling of the frenzy. Interest rates are an important tool for the central bank to control inflation and stimulate economic growth. Lowering interest rates can stimulate economic spending and promote economic growth. However, interest rates may also lead to an increase in inflation. Therefore, reducing interest rates only once indicates that the Federal Reserve has taken a cautious attitude in maintaining a delicate balance between stimulating growth and controlling inflation. The Federal Reserve also issued a statement stating that the economy is steadily growing and recruitment is "maintaining strength.". Federal Reserve officials also pointed out that in recent months, there has been "some" progress in the inflation rate towards the 2% target. Compared to the evaluation after the Federal Reserve's meeting on May 1st, this evaluation is more positive.

Furthermore, data from the US Bureau of Labor Statistics shows that the monthly CPI rate in May was adjusted to 0%, marking the first time since June last year that there has been no increase. Economists had originally expected a growth of 0.1%. The largest drop in energy prices was -2.0%. The cost of housing, including housing, has risen by 0.4% for the fourth consecutive month. The latest data shows that the employment growth in the United States in April was significantly higher than expected, indicating that the US economy is still in a very hot state. The market expects the Federal Reserve not to start cutting interest rates in the summer, but it may cut rates in September. According to CME's Fedwatch, the probability of a rate cut in September is 50% before the May inflation data is released. After the release of inflation data in May, this proportion rose to around 60%.

And, as expected, Federal Reserve decision-makers will keep the benchmark interest rate unchanged at around 5.3%. Since July last year, the Federal Reserve has maintained its benchmark interest rate at this level. Prior to that, the Federal Reserve had raised interest rates 11 times in an attempt to slow down borrowing and spending and curb inflation. If the Federal Reserve lowers interest rates, over time, this will reduce consumer loan costs. For a period of time, consumers have been facing high interest rates on mortgage loans, car loans, credit cards, and other forms of borrowing.

In summary, although the Federal Reserve maintains high interest rates, the US economy is still trying to sustain growth. It is expected that the US economy will grow by 2.1% this year and 2% in 2025, which is consistent with the forecast for March. According to the metrics favored by the Federal Reserve, it is predicted that the core inflation rate will reach 2.8% by the end of this year, higher than the previously predicted 2.6%. The unemployment rate will remain at its current level of 4% and will slightly increase to 4.2% by the end of 2025. The Federal Reserve provides valuable insights into the current state of the US economy and the central bank's monetary policy. This includes inflation reports, interest rate forecasts, and comments on wage growth, which have had a significant impact on the stock market.