Inflation: Fed officials weigh future rate hikes ahead of June meeting

With the June Fed meeting quickly approaching, the Yahoo Finance Live team discusses the probability of a rate hike.

Video transcript

AKIKO FUJITA: The other focus today, inflation. The personal consumption expenditures index showing prices rose 0.4% last month, higher than expected. Core prices stripping out food and energy also came in above expectations. This data now has the odds for a rate hike next month rising. The CME's FedWatch Tool will point to the probability of a rate hike at nearly 60%.

And Seana, this only adds to that huge swing that we have seen in expectations for that meeting, the Fed meeting, come June. You know, I was looking at some of the comments that we got from Fed officials. As recently as last week, we heard Jay Powell say that he believes a potential pause may be on the table or should be on the table because of the lagging indicator or lagging factors of those rate hikes.

He also talked about concerns around credit tightening. And yet all the data that we've gotten seems to suggest that, number one, inflation is coming down, but not as quickly as we like. But also that the demand is still strong. We saw consumer spending out today, still pointing to consumers out there pushing higher in terms of shelling out more money

SEANA SMITH: Yeah. If you take a look at the data, the data obviously has been extremely strong. And that is what we have seen, a total flip here just in terms of the expectations for that June meeting. You mentioned consumer spending, that was up about 8/10 of a per cent last month. And that comes on the heels of what has been a very resilient labor market.

We also know that business activity has been picking up, another bullish sign here for the economy going forward. So now more and more traders are betting on the fact that we will see another rate hike in June.

When it comes to some of those inflationary numbers that we got out this morning, price increases were spread pretty evenly when it comes to goods and services. Goods rising just about 3/10 of a per cent. Services were up 4/10 of a per cent. Although we have seen food prices come down just a bit or some of that pricing pressure ease-- is a better way to put that there-- prices were still up nearly 7% from a year ago.

So yes, we are making some progress when it comes to certain measures on inflation. But when you compare that to the 2% target from the Fed, we certainly have a ways to go.

AKIKO FUJITA: Yeah, we are certainly way off. And that sort of you know, for all the conversations about where the Fed is, it's sort of important sometimes to bring it back to what that mandate looks like. And to your point, 2% is way off of where we are right now. We still have a few more weeks to go, though, until that meeting.