Everyday Economics: The countdown to rate cuts has begun, for real this time

The headline CPI in May was unchanged from the prior month. The annual increase in the CPI is now 3.3%, easing from 3.4% in April. Core CPI advanced 0.16% on the month, down from 0.29% in April. Annual core inflation eased to 3.4% from 3.6% in April. The PPI, which measures changes in the selling prices received by domestic producers, fell in May.

The latest numbers suggest the Federal Reserve’s preferred inflation gauge – the Personal Consumption Expenditures (PCE) Price Index – is likely to continue inching closer to the Fed’s two-percent inflation target. This move would represent a faster descent than the Federal Open Market Committee’s (FOMC) own projections. After an uptick in the first quarter, inflation is now moderating faster than expected.

Look out for this week’s updates on retail sales, homebuilder confidence and new construction.

Retail sales are expected to continue to ease. With little or no pandemic excess savings left, inflation fatigue, and the high-for-longer interest rate environment, consumer spending is likely to moderate further. While homeowners with near record home equity and those with a ton of financial wealth – a benefit of rising stock prices – still have healthy balance sheets, younger households, especially renters may be treading water. The latest New York Fed Household Debt and Credit Report indicates rising delinquency rates are more concentrated among younger households – Gen Z and younger Millennials.