The hoped-for signs of relief for American families did not materialize in May as consumer prices hit a new four-decade high, rising 8.6% and topping what economists thought was the peak in March.
With Russia’s war on Ukraine continuing to pressure global fuel and food prices, and amid ongoing supply chain uncertainties due to Covid-19 lockdowns in Asia, analysts now say the expected easing of inflationary pressures will take much longer to materialize.
The US central bank already had signaled plans for more big increases in the benchmark borrowing rate this week and next month, but chances are rising that the Fed might have to be even more aggressive – which increases the risk the economy might tip into a recession.
The latest inflation report – the last major data point before the Fed’s policy meeting Tuesday and Wednesday – also douses hopes central bankers will be able to call a ceasefire in September ahead of key congressional elections.
If the policy-setting Federal Open Market Committee decides on a giant step -three quarters of a point rather than the expected half-point increase – it would be the first 75 basis point rate hike since November 1994.