Agency: Maintained the interest-free benchmark judgement of the Federal Reserve during the year, but the interest-rate threshold has fallen

ON 15 JULY, CGI REPORTED A 0.4 PER CENT DECLINE IN THE CPI SEASON COMPARISON IN THE UNITED STATES IN JUNE, WHICH FELL TO 3.5 PER CENT IN THE SAME YEAR; AND A ZERO GROWTH IN THE CORE CPI, WHICH INCREASED BY 2.6 PER CENT IN THE SAME YEAR, BOTH OF WHICH FELL BELOW MARKET EXPECTATIONS. DECLINING ENERGY PRICES ARE THE MAIN REASON FOR THE SLOWDOWN IN INFLATION. LOOKING FORWARD, THE SITUATION IN THE UNITED STATES AND IRAQ HAS ESCALATED AGAIN, AND THE OUTLOOK FOR ENERGY INFLATION IS REPETITIVE. AT THE SAME TIME, THE EFFECT OF AI INFLATION IS GRADUALLY EMERGING, AND UPSTREAM HARDWARE MISMATCHES, HIGHER PRICES FOR SOFTWARE AND PERIPHERAL PRODUCTS, AND AGGREGATE DEMAND FOR AI CAPITAL EXPENDITURE MAY MAKE CORE INFLATION MORE STICKY. FOR POLICY PURPOSES, THE INFLATION SLOWDOWN IN JUNE SUPPORTED THE FED’S MAINTENANCE OF INTEREST RATES AT ITS JULY MEETING, BUT WALLER’S RECENT STATEMENT SUGGESTS THAT THE FED IS REASSESSING THE POSSIBILITY OF A “PREVENTIVE RATE HIKE.” WE MAINTAIN OUR BENCHMARK JUDGEMENT, WHICH IS INTEREST-FREE DURING THE YEAR, BUT THE THRESHOLD FOR SUGGESTING AN INCREASE HAS FALLEN. ONCE ONE OR TWO OVERHEATING INFLATION DATA ARE AVAILABLE, THEY MAY PROMPT THE FED TO FURTHER DISCUSS THE INTEREST RATE INCREASE OPTION. KIM XIAN