Weekly economic –United States: Inflation cools as summer begins

Summary

United States: Inflation cools as summer begins

• A bevy of soft inflation data for May fueled optimism that the Federal Reserve will begin cutting rates at the September FOMC meeting. On Wednesday, the May CPI data showed that consumer prices were unchanged in the month, the first flat reading for the CPI since July 2022. Excluding food and energy, core CPI increased by a "low" 0.2% (0.16% before rounding), the smallest monthly increase since August 2021.

• Next week: Retail Sales (Tue.), Industrial Production (Tue.), Existing Home Sales (Fri.)

International: Bank of Japan holds steady, but signals further normalization ahead

• The Bank of Japan (BoJ) did not announce any new concrete policy measures at its meeting this week, but did signal the likelihood of further policy normalization ahead. The BoJ said the virtuous cycle between wages and prices is continuing to intensify, and that it would decide on a detailed plan for the reduction in the pace of its bond purchases. We also expect the BoJ to eventually hike its policy rate further, but not until the October meeting.

• Next week: China Retail Sales & Industrial Output (Mon.), Reserve Bank of Australia (Tue.), Bank of England (Thu.)

Interest rate watch: FOMC maintains its measured approach to easing

• There wasn't much surprise that came out of the FOMC's June monetary policy meeting this week. The Committee left rates unchanged, and now expects higher inflation and less easing this year than previously. It remains a close call between one and two 25 bps rate cuts this year.

Topic of the week: Idiosyncratic risks weigh on Latin America's financial markets

• This week, Latin American financial markets—particularly currency markets—came under pressure. We can point to the election surprise in Mexico as the originator of regional market volatility; however, additional policy uncertainty in countries such as Brazil and Colombia also contributed to new volatility in local markets.

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