Today is the FOMC announcement day and CPI report day. As expected, the Fed kept rates unchanged. The FOMC statement is basically the same as the May one except for a change of wording on from “a lack of progress” to “modest progress” toward the 2% inflation objective. In addition to the rate decision, people were also anxiously waiting for the rate projections aka dot plot for 2024 and beyond. The FOMC members’ median rate projection for 2024 went from 4.6% in March to 5.1%!!! In the current report as shown above, 4 out of 19 FOMC members predicted no rate cuts this year while 7 predicted one cut and 8 predicted two cuts. In comparison, 10 FOMC members predicted three or more cuts in March. Basically, the FOMC is telling us that rates will most likely stay above 5% this year!
May CPI report did show some improvement. Headline CPI MoM rose 0% in May vs. 0.3% in April and 0.4% in March while the core CPI MoM rose 0.2% in May vs. 0.3% in April and 0.4% in March Headline CPI YoY rose 3.3% in May vs. 3.4% in April, 3.5% in March, 3.2% in February, 3.1% in January, 3.4% in December, 3.1% in November, 3.2% in October, 3.7% in September, 3.7% in August, 3.2% in July, 3% in June, 4.0% in May, 4.9% in April 2023 and 5% in March 2023. Core CPI YoY rose 3.4% in May vs. 3.6% in April, 3.8% in March, 3.8% in February, 3.9% in January, 3.9% in December, 4% in November, 4% in October, 4.1% in September, 4.2% in August, 4.7% in July, 4.8% in June, 5.3% in May, 5.5% in April 2023 and 5.6% in March 2023.
Core CPI MoM is down to 0.2%, which is good !! Service inflation YoY is still stubbornly high at 5.3% in May vs. 5.3% in April but MoM number did slow to 0.2% in May vs. 0.4% in April. This month’s inflation numbers do look better. I think this is what the Fed meant by “modest progress”. If the inflation continues to slow, we probably will get one or two cuts this year. I do feel certain parts of the economy are strained right now. I just moved out of my (tiny) office from Regus. I feel the space is getting empty. I know another startup who is also moving out because they get an office space for a lot cheaper in a nice downtown location. There are still a lot of empty office and retail spaces around here in the silicon valley despite the big tech and its employees are flush with cash. I can’t imagine the commercial real estate situation in less-well-to-do metros. Many tech startups are currently struggling with funding and growth. I believe we are also experiencing the first wave of AI startup consolidation. Lacework just got bought for the cheap and who knows what will happen to companies like Tome, Stability, Character AI, Jasper AI and many many richly funded AI companies that have decent traction but are not really runway successes that warrant Decacorn status.
