Economy

USA consumer inflation slows in May on cheap energy, used cars

USA consumer inflation slows in May on cheap energy, used cars

Powell, in a speech last week, opened the door to interest-rate cuts after holding in May that below-target inflation was due to transitory factors.

In an interview with CNBC, he said: "Our Fed is very destructive to us".

Last week Mr Powell appeared to hint that a rate cut could be happening, citing a response needed for the global trade war. The index for all other items minus food and energy increased 0.1 percent, the report said.

The dollar has suffered a setback after the latest escalation of the U.S.

Previous data has shown that the rate cut will be appropriate.

The Fed can afford to be aggressive because inflationary pressures are muted. For the month, the index increased by 0.2 for each before seasonal adjustments. Apparel prices were unchanged in May after tumbling 0.8% in the prior month.

While the Fed was widely expected to continue holding rates steady this year, markets are increasingly betting on a rate cut.

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The Euro-to-Dollar rate was 0.14% lower at 1.1317 Wednesday although it's risen 0.8% in the last week, which has helped the exchange rate reduce what was once a 2% 2019 loss. The US President failed to explain why he felt the US was at a disadvantage but he continued: "The Fed Interest rate way too high, added to ridiculous quantitative tightening!"

The feeble jobs numbers came on the heels of soft data on retail sales, factory output and home purchases and occur against a background of Trump's escalating trade war with China.

A note of caution is warranted, though, as the forthcoming data may not provide a clear enough direction for traders, and with the next Fed policy meeting a week away on June 18-19, some investors may choose to sit on the sidelines until then.

Markets care about the inflation and Fed story because changes in interest rates, as well as the outlook for them, can have a significant influence over worldwide capital flows as well as speculative short-term trading activity.

The New Zealand Dollar drifted lower this week as the market remained focused on trade tensions between the USA and China and the increased likelihood of a rate cut from the Federal Reserve. Others expect the rate cut to happen in the September meeting.

"While we doubt that the Fed will carry through with the 100 basis points or so of policy easing now priced by markets, the longer trade tensions drag on, the greater the chance the Fed will be forced to respond aggressively", says ING's Knightley, in a note to clients after the release. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency.


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