FX.co ★ Will the Fed halt interest rate hikes?

US inflation data for May showed a decrease not seen in the past two years, increasing the possibility of a pause regarding interest rate hikes.

The CME FedWatch Tool said they see a 91.9% probability that the Fed will announce a pause at the current FOMC meeting, especially since US CPI increased by only 0.1% m/m and stood at 4% y/y. However, the core CPI, which excludes food and energy expenses, showed different results, rising by 0.4% m/m and by 5.3% y/y. The report also noted that average hourly earnings, adjusted for inflation, increased by 0.3% m/m and grew by 0.2% y/y.

Not long ago, overall inflation exceeded core inflation. Therefore, the latest inflation indicators shook the financial markets. US indices closed with moderate gains, while dollar lost value, falling by 0.346%, almost reaching an index level of 103.

Analysts and economists agree that the interest rate will remain unchanged at the June FOMC meeting. However, the members will set conditions under which rates could be raised again at the July meeting.

The CME FedWatch Tool said it sees a 62.5% probability of a 0.25% rate hike in July, a 33% probability of a pause, and a 4.5% probability of a 0.50% rate increase.