Time for Jerome Powell to exhale?

The latest CPI figures show that inflation continues to cool. The market is now firmly betting on a rate pause from the Federal Reserve in June.

Inflation continues to cool. Next up, a rate pause from the Federal Reserve?

The US consumer price index (CPI) rose 4.9% from a year ago. While that’s a historically high level of inflation, the trend continues to go in the right direction. Since peaking at 8.9% in June, the year-over-year inflation rate has steadily declined. It’s now below 5% for the first time since May 2021.

Now all eyes are on the Fed and Jerome Powell. The central bank’s next policy meeting is in mid-June. Traders are now forecasting more than 85% odds that the Fed will sit tight and leave rates in a range of 5% to 5.25%. The market is now even starting to price in some rate cuts later that summer.

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It may be premature (not to mention overly optimistic) for the market to expect that…especially with the job market still relatively robust. But as the recent round of bank failures show, the Fed has to start being a little more concerned about market volatility and signs of an economic slowdown.

The war on inflation may not yet be won. But the Fed clearly has to start looking at both parts of its dual mandate. As more and more companies announce major layoffs, maximum employment may soon become a more pressing concern than price stability.