Data on consumer prices in the United States showed that inflation rates in June exceeded analysts' expectations, reaching the highest monthly and annual increase since August 2008. According to the data released on Tuesday, the year-on-year inflation rate in June was 5.4%, the highest since August 2008, with monthly inflation rising by 0.9% in June, following a 0.6% increase recorded in May.
The inflation data impacted the dollar's prices, as the index measuring the performance of the U.S. currency against six major currencies rose by 0.3%. The pace of inflation increases exceeds the targets of the U.S. Federal Reserve, which aims to maintain an average inflation rate of 2% for the current year under its accommodative policies, which may accelerate tightening in response to inflation data.
The Federal Reserve's meeting in June marked a shift in the central bank's comfort level with inflation risks amid rising price pressures as the economy reopened from the pandemic, supported significantly by monetary and fiscal policy. Federal officials anticipate two interest rate increases in 2023, according to their average forecasts, with seven out of eighteen suggesting a rate increase next year. Concerns about inflation risks rose from five officials in the March meeting to thirteen in June.
Last month, the Federal Reserve kept the target range for the benchmark interest rate unchanged at between 0% and 0.25%, where it has been since March 2020 at the onset of the pandemic. Federal Reserve officials anticipated continued progress toward reaching the threshold for scaling back large asset purchases, according to the minutes from their June meeting.
Monetary policymakers agree that the threshold indicating when to tighten policy and reduce purchase programs has not yet been met by the economy, but they expect that economic conditions requiring a shift to tightening are developing, as noted in the minutes from the Federal Open Market Committee meeting on June 15-16, published on Wednesday. The minutes stated, "The economic recovery has not yet met the Committee's standards, although some participants expect continued progress." They added, "Many participants anticipated starting to slow the pace of asset purchases sooner than previously expected, in light of recent data."
