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US inflation fell to 3.3 per cent in May, in a boost to Joe Biden as Federal Reserve officials prepare to outline their plans for interest rate cuts this year.
The Bureau of Labor Statistics’ figure for the annual rise in consumer prices was marginally lower than economists’ expectations that inflation would remain flat at 3.4 per cent.
Core CPI, which strips out changes for food and energy prices, hit 3.4 per cent, below expectations of a slight fall to 3.5 per cent.
Treasury yields fell and stock futures rose following the release, as investors bet on more interest rate cuts this year.
After Wednesday’s figures, traders in the futures market gave an 84 per cent likelihood to a cut at the Fed’s September meeting before November’s presidential election. That compares with a 60 per cent chance beforehand.
Traders have now fully priced in two cuts this year, according to LSEG data. Previously it had been between one and two.
Biden has touted a strong labour market and falling inflation as he seeks to convince voters of his economic record in the run-up to the election.
Last week’s FT-Michigan Ross poll of American voters showed that former president Donald Trump’s lead over Biden in trustworthiness to handle the economy had fallen from 11 per cent to 4 per cent between February and June.
The Fed is set to leave interest rates on hold at their 23-year high of 5.25 to 5.5 per cent, in an announcement due later on Wednesday.
The central bank will also publish its projection, or “dot plot”, for how many times it intends to cut borrowing costs this year.
Blerina Uruci, chief US economist at T Rowe Price, said her “base case” was that the Fed would make two quarter cut rate cuts this year.
While the Fed’s preferred inflation gauge is the personal consumption expenditures figure, CPI data still has an impact on the central bank’s approach to cutting rates.
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