Inflation hit a 3-year high primarily due to rising gas prices, which are primarily driven by the shutting down of the Strait of Hormuz. The Federal Reserve has already revealed there will be no rate cuts at least until 2027.
No Fed Rate Cuts Anytime Soon | American Enterprise Institute– www.aei.org
News Source
EXCERPT:
Donald Trump has made no secret of his hope for early interest rate cuts from Kevin Warsh, the Federal Reserve’s new head. This sets Mr. Trump up for deep disappointment. It is not only that Mr. Warsh does not have the necessary votes on the Federal Reserve’s Open Market Committee (FOMC) to cut rates. It is also that Trump’s war of choice in Iran, coupled with his reckless budget and import tariff policies, offer strong arguments against the appropriateness of an interest rate cut at this juncture.
Start with the fact that there are twelve voting members on the FOMC, of whom Mr. Warsh has only one vote. At its last meeting, many FOMC voting members wanted to remove the “easing bias” language in the Fed’s last interest rate decision. Since then, a majority of FOMC participants have indicated that the Fed may need to raise interest rates later this year if inflation does not cool down to the Fed’s 2 percent inflation target. This makes it highly unlikely that, even if he wanted to do Trump’s bidding, Mr. Warsh will be able to convince his fellow FOMC members to cut interest rates until there is clear evidence that inflation is coming down.
The key reason that most FOMC participants think that an interest rate hike might be warranted later this year is that inflation is currently running at 3.8 percent, or at roughly double the Fed’s inflation target. At the same time, unemployment, at 4.3 percent, remains close to its historically low level. One important factor driving inflation higher has been the spike in gasoline prices from less than $3 a gallon at the start of the Iran war to their current level of around $4.25 a gallon. Other factors have been the hike in import tariffs to their highest level in the past one hundred years and Trump’s large unfunded tax cuts in his One Big Beautiful Bill Act. According to the Congressional Budget Office, those tax cuts will keep the budget deficit at over 6 percent of GDP as far as the eye can see. They will also soon raise the public debt level, in relation to the size of the economy, to its highest level since the end of the Second World War.
Inflation rises to a 3-year high on spiking gas prices, squeezing Americans financially– abcnews.com
News Source
EXCERPT:
WASHINGTON — Spiking gas prices pushed inflation to its highest level in three years last month, a headache for the Federal Reserve and a potential political challenge for the Trump administration as midterm elections near.
Consumer prices rose 4.2% in May from a year earlier, the Labor Department said Wednesday, up from 3.8% in April and the third straight increase. On a monthly basis, prices rose 0.5% last month, after big gains of 0.6% in April and 0.9% in March.
Rising inflation has soured many Americans on the economy, as the cost of gas, groceries, and other necessities hammer many Americans financially.
Excluding the volatile food and energy categories, core prices rose 2.9% in March from a year earlier, up from 2.8% in April. On a monthly basis, core prices increased a modest 0.2%.
About The Author
1 thought on “Gasflation Kills Fed Cut Hope”