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Jul 12, 2019, 12:00 PM GMT

The CPI Data in the US Decorated in June. An Interest Rate Cut Now Seems Necessary

The Bureau of Labor Statistics in the US reported a fall in the inflation rate for the 12 months ending in June before seasonal adjustment.

“The all items index increased 1.6 percent for the 12 months ending June, a smaller increase than the 1.8-percent rise for the period ending May. The index for all items less food and energy rose 2.1 percent over the last 12 months, and the food index increased 1.0 percent. The energy index, in contrast, declined 3.4 percent over the last 12 months.” [source]

These results come just one day after Jerome Powell’s testimony before Congress and his speech explaining the current state of the economy, where he hinted that the FOMC might have reconsidered its previous stance in regards to the interest rate.

Just a month ago the Governing body of the FED was unequivocally opposed to the idea of cutting the rate, and Powell quickly dismissed the notion as an unnecessary political move on the part of Donald Trump who would be facing new presidential elections in 2020. Jerome Powell had initially rejected the prospects of early cuts in 2019 and instead pointed towards heightened chances for implementing changes in the monetary policy as early as 2020.

The underlying economic circumstances have changed substantially since then, and the general price stability in the country is now in a short-term trend of gradually deteriorating performance, which is pushing the inflation rate away from the desired 2 per cent symmetrical level.

Overall, because of these recent developments, the FED now has a very compelling case to cut the interest rate to accommodate higher consumer spending rates, and so that in turn, the core inflation can once again spike towards the target level.