May inflation decreases slightly, signals a slowing economy: CEI analysis

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The inflation report released for May shows overall inflation decreased from 3.4 percent to 3.3 percent. While inflation levels are unlikely to hit historic highs again, the economy is showing signs of slowing down which could prompt the Fed to preemptively slash interest rates.

CEI Senior Economist Ryan Young:

“Not a whole lot changed on the inflation front in May. The annual rate for the overall CPI ticked down from 3.4 percent to 3.3 percent, while the core rate ticked down from 3.6 percent to 3.4 percent. That last mile of inflation, getting back down to the Fed’s 2 percent target, remains elusive.

“The good news is that unless Congress decides to go on another stimulus spree, a return to 9 percent inflation is unlikely. The economy’s good overall economic health means that Congress can hopefully restrain itself.

“The bad news is that the economy may be beginning to slow a bit. The Federal Reserve will issue an interest rate decision today. A potential slowdown later on might encourage the Fed to do its own stimulus now by lowering rates and growing its balance sheet. If that is what is announces today, the Fed will lose credibility. Markets will expect inflation to go back up, and factor that into today’s prices in a situation where expectations influence outcomes, leading to their own confirmation.”