May CPI: Short-Term Inflation Dynamics Suggest Fed Should Be More Dovish

Summary

• May's inflation data came in softer than expected, with both headline and core CPI below consensus, signaling cooling inflationary momentum.
• Core goods and services inflation remains subdued, and tariffs have not yet significantly impacted consumer prices, supporting a dovish Fed outlook.
• Markets reacted positively to the soft inflation report, with equities rising and bond yields falling, as investors anticipate potential Fed rate cuts.
• Given the recent data, I believe the Fed should cut rates soon, which could drive U.S. equities to retest all-time highs from early 2025.

akinshin/iStock via Getty Images

The key U.S. inflation indexes saw softer-than-expected increases in May across the board, as the effects of tariffs on consumer prices appear to be tame so far. Both headline and core inflation came in below consensus estimates, reinforcing the

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.