The U. S. Bureau of Labor Statistics has just released the Consumer Price Index (CPI) report for June. This report shows that there is progress in the war against inflation, but that progress is very small and not uniform.
Overall, the Index showed an increase of 3.0%, which is slightly lower than it was in May. However, when the more volatile items, food and energy, are removed, the Index at 3.3% is higher than it was in May. In other words, core inflation is still not very well controlled.
The big question now is whether this modest change in inflation will give the Federal Reserve the incentive it needs to lower interest rates.
The head of the Federal Reserve, Jerome Powell, has been flirting with lowering interest rates for at least six months. This was particularly evident during his recent appearance in front of Congress. Apparently, the traditional goal of 2.0% inflation is no longer being adhered to. He has made it clear that lower interest rates will happen long before that 2.0% goal is achieved.
But whether Powell lowers interest rates by the end of summer, it seems that every market that is likely to be affected by this has already reacted.
For example, mortgage rates have gone down substantially in the last few days, as evidenced by the following chart from Investopedia.
Also, the rates that banks pay on their CD’s has been declining in the last couple of weeks. For example, US Bank’s preferred CD rate for a 7-month DC had been 4.55% APY, but has recently been lowered to 4.30% APY.
The stock markets also appear to have factored in an interest rate lowering because all three major indices (DJI, S&P500, and NASDAQ) have been making modest but steady gains lately.
As is often the case when it comes to economics, there are winners and losers. Those contemplating obtaining a mortgage and those with retirement plans heavily invested in the stock market will benefit. Those who prefer saving accounts as a major component of their financial planning will not be too happy.
