FINWIRES · TerminalLIVE
FINWIRES

Inflation Set to Cool as Energy Prices Move Closer to Pre-Iran War Levels, New York Fed's Williams Says

By
Inflation Set to Cool as Energy Prices Move Closer to Pre-Iran War Levels, New York Fed's Williams Says

Inflation should ease in the next few quarter as energy prices are expected to trend back closer to where they were before the US-Iran war began, Federal Reserve Bank of New York President John Williams said Wednesday.

Overall inflation, as measured by the personal consumption expenditures price index, is "unquestionably too high" at about 4%, but is expected to decline to around 3.25% by year-end, Williams said in remarks prepared for an event in New York. Inflation should continue to cool and hit the Fed's 2% goal in 2028, he said.

"There are encouraging reasons to expect that inflation has peaked and should edge down in coming quarters," Williams said.

One of the factors he cited was expectations around energy prices returning to pre-Iran war levels.

"Based on oil prices today and futures market pricing into next year, it appears that prices for energy and related goods have likely peaked and will come down closer to levels seen before the initial closure of the Strait of Hormuz," Williams said. "Of course, this situation is fluid and subject to a great deal of uncertainty."

Crude prices plunged in May and June, but have rallied this month as tensions between the US and Iran escalated, potentially putting their preliminary peace deal at risk.

Additional factors behind a potential slowdown in inflation rates are tariffs, which are not expected to yield significant upward pressure on prices, and easing shelter inflation, he said.

Official data on Tuesday showed US consumer prices decreased last month for the first time in more than six years amid lower energy costs. The Fed's preferred inflation metric -- the PCE price index excluding food and energy -- accelerated to the fastest reading in more than two years in May, government data showed late last month.

In his congressional testimony on Tuesday, Fed Chair Kevin Warsh vowed to curb high inflation, affirming the central bank's commitment to restore price stability.

Williams projects the US economy to grow 2% to 2.25% this year and over the next two years, with the unemployment rate edging down to 4% by 2028 from 4.2% in June.

"Growth in the economy is solid and on trend, and the labor market is likewise solid and stable," he said. "But with inflation running high, it is imperative that we restore it to the (Fed's) 2% longer-run goal on a sustained basis. The current stance of monetary policy is well positioned to do that."

Related Articles

Japan's Reuters Tankan Manufacturing Sentiment Stalls in July
US Markets

Japan's Reuters Tankan Manufacturing Sentiment Stalls in July

Sentiment among major Japanese manufacturers held steady in July, with the Reuters Tankan manufacturing index unchanged at +13 points, according to the latest Reuters Tankan survey released Wednesday.The reading missed the consensus forecast of +14 tracked by Trading Economics.It marked the 16th consecutive month that sentiment among manufacturers has remained in positive territory.The poll, conducted from July 1 to July 10, drew responses from 218 of the 511 companies surveyed, Reuters said.Non-manufacturers' sentiment softened more sharply, with the index falling to +25 from +32 the previous month, as firms cited rising cost pressures and concerns tied to the Middle East conflict, according to Reuters.The flat manufacturing reading follows a stronger June, when the index climbed to +13 from +8, with chemicals and machinery makers leading the growth.This month, the sustained positive sentiment was driven by confidence in the recovery of the semiconductor market, including in memory-related demand, Reuters said."Order volumes and values are at levels we've never seen before, ​and we're concerned about production capacity," a manager at a precision machinery maker was quoted by Reuters as saying.The latest survey data came two weeks after the Bank of Japan published its latest poll data showing that business confidence in Japan surged to an eight-year high in June.It further builds the case for another BOJ rate hike following the central bank's move to increase rates to a 31-year high of 1% in June.Reuters said most analysts it polled expect the BOJ to raise rates again to 1.25% by the end of the year.

Nikkei 225
Update: Equities Rise Following CPI Data, Big Bank Earnings
US Markets

Update: Equities Rise Following CPI Data, Big Bank Earnings

(Updates with market moves at the end of the day.)US stocks advanced Tuesday as investors cheered cooler-than-expected consumer inflation data and digested big banks' earnings reports.The Nasdaq Composite closed 0.9% higher at 26,107, while the S&P 500 rose 0.4% to 7,543.6. The Dow Jones Industrial Average settled just above the flatline at 52,508.3. Among sectors, technology paced the gainers, while healthcare saw the biggest drop.The US consumer price index declined 0.4% in June, its first monthly drop since May 2020 and the largest decline since April 2020, amid lower energy costs, official data showed. The consensus in a Bloomberg-compiled survey was for the index to move down by 0.1%.Annually, inflation cooled to 3.5% last month from May's 4.2%, compared with expectations for a 3.8% print."Investors and the Federal Reserve will breathe a sigh of relief at the size of the improvement in the inflation numbers last month, likely keeping an imminent rate hike off the table later this month," BMO said in a note.There's now an 83% likelihood that the Fed will keep its monetary policy unchanged at its July meeting, up from 58% Monday, according to the CME FedWatch tool. The odds of a 25-basis-point rate increase slid to 17% from 42%.US Treasury yields were lower intraday, with the two-year rate down 7.4 basis points at 4.19% and the 10-year rate falling 2.5 basis points to 4.59%.In corporate news, Goldman Sachs (GS), JPMorgan Chase (JPM), Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C) all posted strong second-quarter results Tuesday.Goldman shares jumped 9%, the best performer on the Dow and the second-top gainer on the S&P 500. JPMorgan and Bank of America also advanced, while Citigroup and Wells Fargo fell.IBM (IBM) shares slumped 25%, the worst performer on the S&P 500 and the Dow. The computer and software company's preliminary second-quarter results fell short of Wall Street's expectations, with Chief Executive Arvind Krishna calling the performance "disappointing."West Texas Intermediate crude oil was up 1.9% at $79.65 a barrel in Tuesday late-afternoon trade, while Brent rose 2.3% to $85.22.US President Donald Trump said Tuesday he would no longer demand a 20% "reimbursement fee" from ships passing through the Strait of Hormuz. In a social media post, Trump said he has "decided to replace" the fee with "trade and investment deals" with Gulf countries.Amid renewed tensions in the Middle East, Trump said a "full blockade" will be enforced on all ships coming to and from Iranian ports.Fed Chair Kevin Warsh vowed to curb high inflation straining American consumers and companies, affirming the central bank's commitment to restore price stability.Monetary policymakers "have no tolerance for persistently elevated inflation," Warsh said while speaking before a US House of Representatives committee. "If we get policy right -- and we will -- the inflation surge of the last five years will be a thing of the past."Gold was up 1.4% at $4,061.60 per troy ounce, while silver gained 2% to $59.15 per ounce.

Dow JonesNasdaq CompositeS&P 500$BAC$C$GS$IBM$JPM$WFC
Annual Rents Extend Run of Declines to Nearly Three Years, Realtor.com Says
US Markets

Annual Rents Extend Run of Declines to Nearly Three Years, Realtor.com Says

Asking rents in the US fell annually for the 35th consecutive month in June, with a "modest rent relief" expected to continue during the rest of the year, News Corp's (NWS, NWSA) Realtor.com said Tuesday.The median asking rent across the 50 largest US metropolitan areas for up to two-bedroom properties dropped 1.5% year over year to $1,692 last month, according to a report by the online real estate portal.While the median rent is 16% above June 2019, it has fallen 4.1% from its August 2022 peak."As we enter the summer, we expect the median asking rent to tick up on a monthly basis -- a typical seasonal pattern," Realtor.com Chief Economist Danielle Hale and Economist Jiayi Xu said. "However, given the surge in multifamily construction over the past few years, we anticipate continued year-over-year declines. In other words, modest rent relief is likely to continue in 2026."Permit activity for projects of five or more units in the 50 largest US metro areas increased 1.9% annually in 2025 but was about 13% below 2019 levels, Realtor.com added."This retreat raises concerns about the long-term path to affordability, since a permitting pipeline that remains well below pandemic levels suggests the supply-side progress that has driven rents down over the past three years may not last much longer," Hale and Xu wrote.US housing starts plummeted to the lowest level since 2020 in May amid a steep drop in multi-family projects, government data showed last month. Building permits -- which is a forward-looking indicator of homebuilding -- decreased 0.7%.

$NWS$NWSA