Taking a Breather

Taking a Breather

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  • The latest CPI report indicated that inflation eased to 4.9% in April, hinting at a slowdown in the economy. While this shows a decrease from the recent peak, inflation still remains relatively high. The Federal Reserve had previously increased rates for over a year in an effort to subdue inflation and reduce economic activity. However, the Fed recently suggested that it may halt any further increases in the near term.
  • The Federal Reserve is closely monitoring any indications of a drop in inflation rates towards its targeted 2%. In April, consumer prices rose by 0.4% on a seasonally adjusted basis from the previous month, following a 0.1% increase in March. The Labor Department's consumer-price index report revealed that the spike was largely driven by a surge in housing expenses and gasoline prices. These figures came on the heels of a 5% increase in prices from a year earlier, reported in March.

Why it matters

Last week, the Federal Reserve raised its benchmark federal-funds rate for the tenth time in a row, taking it to a range of 5% to 5.25%, the highest level in 16 years. The resulting tightening of financial conditions, including increased borrowing costs, a dip in stock prices, and a stronger dollar, takes time to permeate the economy. Although recent banking system issues are expected to exacerbate the situation, the extent of any credit credit squeeze remains unclear and may not manifest for some time.


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