PNC economists provide insight into key indicators that may have an impact on current business performance and the path ahead.

Federal Funds Rate Remains Unchanged

  • As expected, the Federal Open Market Committee kept the federal funds rate unchanged in its June policy statement, in a range between 5.25% and 5.50%. 
  • The Federal Open Market Committee (FOMC) June meeting included the release of the Summary of Economic Projections (SEP), or “dot plot,” which showed a median of one 25 basis point rate cut this year, compared to a median of three cuts in the previous dot plot. Chair Powell noted that the June dot plot suggests that some of the expected monetary easing has been moved from 2024 to 2025, as the FOMC wants to “gain further confidence” that inflation is slowing.
  • PNC’s June interest rate forecast is for two 25 basis point fed funds rate cuts this year, at the FOMC’s November and December meetings. This forecast assumes that inflation gradually eases this year due to a combination of slower housing inflation and a reduction in inflationary wage pressures, with a slight softening in the labor market.

Consumer Price Index (CPI)

  • CPI Topline inflation came in at +0.01% in May 2024 versus April on a seasonally adjusted basis. Although this translates to a 3.3% gain versus one year ago, an underlying downward trend in current inflation conditions appears to be asserting itself.
  • Core CPI, which extracts volatile food and energy inputs and aligns with the Federal Reserve’s preferred policy-setting metric, rose by only 0.16% in May 2024 versus the month prior. This monthly gain translates to a 2.0% annualized pace. May’s result is the first time Core CPI has touched the elusive 2.0% mark on an annualized basis (which assumes that current conditions would persist for an entire 12-month period) since August 2021 (+1.7%). May’s outcome represents the second consecutive monthly deceleration in Core CPI inflation, and annualized growth is now down from the 4.8% pace seen to open this year in January.

Producer Price Index (PPI)

  • PPI was down by 0.25% on a seasonally adjusted basis in May 2024 versus April. This represents a 2.2% year-over-year gain, which itself is weaker than April’s +2.3% pace. Core PPI inflation, which excludes volatile costs for food and energy prices, also eased on a year-over-year basis to +2.3% versus +2.5% in April.
  • Services PPI was flat for the month in May 2024, while Goods PPI fell for the sixth time in eight months. Prices in Final Demand for Goods producers retreated into negative territory, posting a sizeable decline of 0.8% for the month – the largest monthly drop since October 2023 (-1.2%). Weaker consumer demand for goods, coupled with a lack of traction in producers’ own cost pressures, will help consumer price inflation continue to ease through the rest of this year.
  • Energy PPI declined by a massive 4.8% in May 2024, resetting producers’ energy costs almost all the way back to the post-pandemic lows of mid-2023. May 2024’s Energy PPI drop implies that the second half of 2024 will eventually see diminishing cost pressures from producers’ own energy bills, potentially bringing the Fed’s 2% consumer inflation goal into sight by year’s end.

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