The U.S. Labor Department released its latest inflation report on Tuesday. The report showed that inflation cooled in June, giving the Fed more confidence that price pressures are easing. Consumer prices fell 0.4% from May to June, the largest monthly decline in inflation in four years.
On an annual basis, inflation slowed to 3.5% in June from 4.2% in May, indicating that price growth continued to slow. The report showed that the fall in inflation was mainly due to lower prices for gasoline, clothing and used cars. White House National Economic Council Director Kevin Hassett said the drop in energy prices was expected, but added that several other prices have also declined due to President Donald Trump’s policies.
Oil prices rise after Iran attack
U.S. President Trump also announced that the United States will extend its “blockade” against Iran. Strait of HormuzIt is an important shipping route in the world. Trump said the United States will be the “guardian of the Strait of Hormuz.” He said Iranian ships and countries buying products from Iran would not be allowed to use the waterway, while other countries would continue to receive U.S. protection, Katu ABC2 reported.
Trump also said countries using the Strait of Hormuz must pay the United States 20% of the value of their cargo to help cover the costs of protecting the route. Brent crude oil rose 4.6% to $87.13 a barrel on Tuesday as tensions increased.
Core inflation remains low
U.S. natural gas prices Prices per gallon have also increased about 6 cents in the past week, to a national average of $3.86 per gallon. Despite higher oil prices, core inflation remained flat in June as food and energy prices moved rapidly. Economists see this as a sign that underlying inflation is continuing to cool.
On an annual basis, core inflation rose 2.6%, down from 2.9% in May but still above the Fed’s 2% inflation target. Economists told The Associated Press that rising gas prices from the Iran conflict have not rippled through the broader economy, except for higher airfares and some other costs.
“The reading very much suggests that inflation this year is transitory,” Michael Metcalfe, head of macro strategy at State Street Markets, told The Associated Press. “Yes, gas prices are up, but everything else is more or less flat,” Metcalfe added.
Fed hopes to cut interest rates
Economists believe the report reduces pressure on the Federal Reserve to raise interest rates in the near future as inflation slows. The Fed had left key interest rates unchanged in June, choosing not to raise borrowing costs. Federal Reserve Chairman Kevin Warsh appeared before the House Financial Services Committee on Tuesday to deliver his first semiannual monetary policy report.
Warsh defends Fed over inflation
Wash said in his prepared testimony Fed “Intolerable” for high inflation and believes it will become “a thing of the past”.
Hassett said the White House respects the Fed’s independence and has full confidence in Warsh’s leadership. “We respect the independence of the Fed, especially now that Kevin Warsh is in office. You see, he’s taken a lot of steps. He’s appointed an advisory board that’s made up of some of the greatest minds on the planet, so we have a lot of respect for their ability to look at the data and decide what to do. But gosh, when they see the data today, they’re like, gosh, things are really moving in the right direction,” Cato ABC2 quoted Hassett as saying.
Lawmakers are expected to ask Warsh about the latest inflation report and its impact on the Fed’s next interest rate decision.
