Prices fell in June for the first time in almost two years. Headline CPI declined 0.1% month-over-month, for the first drop in 23 months, according to the U.S. Bureau of Labor Statistics. Economists forecast inflation to increase by 0.1% vs May. On an annual basis, CPI rose 3.0% in June – down from 3.4% the prior month – to beat estimates for a 3.1% gain. 

Core CPI, which excludes food and energy costs, likewise surprised to the downside, rising just 0.1% in June vs the previous month. Forecasts called for a 0.2% increase.

Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) are looking for sustained evidence that inflation is decisively headed toward its long-term target of 2% before they move to cut the federal funds rate from a 23-year high. The latest CPI report adds a dovish data point to the Fed's deliberations on interest rates, experts say.

"Better than expected inflation readings in many key sectors should allow the Fed to start talking about adjusting policy in July and potentially allow the Fed to act in September," says George Mateyo, chief investment officer at Key Wealth. "In particular, housing, which has been elevated, showed some moderation. That said, we still see the Fed wanting to gain further confidence before cutting aggressively unless stress materializes in the labor market." 

As of July 11, futures traders assigned an 86% probability to the first quarter-point cut coming in September, up from 70% a day ago, according to CME Group's FedWatch Tool. 

With the June CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Expert takes on the CPI report

"The CPI report showed that prices for the consumer are slowing. The headline CPI month over month reported that prices actually fell for the first time in 23 months to -0.1%. This was lower than the forecasted 0.1%. This will be welcome news for the Fed although Chairman Powell did indicate in his remarks to Congress on Tuesday that there are risks to both sides of the economy. On the one hand we have the threat of inflation, which up to now has been the main point of focus for banks around the world including the Fed. On the other hand, with interest rates now on the restrictive side the Fed has to be careful not to stave off growth and push the economy into a recession." – Pete Tibbles, senior vice president, foreign exchange, financial risk management at BOK Financial

"The inflation print today appears to prove the hot data to start the year was mostly an outlier. It appears we've resumed the disinflationary trend lower – great news for the Fed. As economic data continues to slow, the implications are passing through to cost measures (and to the labor market where the unemployment rate is drifting higher). We imagine the Fed speak will turn more dovish, and the more promising data all but guarantees a September cut. We honestly wouldn't be surprised if the Fed went ahead with a quarter-point cut in July." – John Luke Tyner, portfolio manager at Aptus Capital Advisors

"Widespread disinflation; the Fed will cut soon. June's CPI data bring more evidence of broad-based disinflation, giving the Fed the green light to ease multiple times this year. Prices for core services ex-rents were unchanged for the second straight month. Looking ahead, the foundations remain in place for CPI inflation to drop further in the second half of this year. Labor market slack is building, dragging on wage growth and new rent increases, while retailers' margins are under mounting pressure from increasingly budget-conscious consumers. The CPI data will not stand in the way of the FOMC cutting interest rates quickly later this year in response to a faltering labor market. We continue to expect 1.25 percentage points of easing this year, beginning in September with a quarter-point cut. The sooner the better." – Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics

"Jerome Powell did his best Kobe Bryant impression this week, proclaiming the 'job's not finished' on inflation. But this CPI print below expectations will make the calls of the September doves pretty impossible to ignore. With the labor market no longer considered a source of inflationary pressure, markets will likely turn to employment data, where any softening will likely crank the volume up on September noise. Wake me up when it ends." – Dann Ryan, managing partner at Sincerus Advisory

"This report supports that we're getting close to the onset of Fed rate cuts. The risk narrative has become better balanced between inflation and a growth slowdown, and the June data showed a normalizing labor market and cooling price pressures. The soft landing remains in sight. For investors who are still feeling cozy holding onto excess cash, this should prompt consideration of whether that still makes sense. The case for extending duration is strengthening, and we see potential for stocks to continue making new record highs in the year ahead. Now, the focus shifts to earnings season to validate that optimism." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management

"Part of the reason for this decline in inflation was that household consumption, construction spending and the services sector inflation came in below analysts' expectations. Another area to note is rents – the cost of rent rose just 0.3% in June. This is the smallest increase in almost three years. As per Jerome Powell’s last Fed minutes, he needed to see more encouraging economic data before rate cuts are enacted. In a reversal of prior comments, he recognized that the economy is slowing, and he appears to be setting up for a September rate cut. Although it appears a September rate cut is more likely, we still have two more inflation prints prior to the September Fed meeting – anything can happen, and the Fed is closely monitoring the situation." – Robert Conzo, CEO and managing director at The Wealth Alliance

"Today's CPI report is a good scenario for the Fed and could help change Fed Chair Powell's perspective. Remember that just yesterday Powell testified he believes inflation is receding, but he was reluctant to say it’s moving substantially down toward the Fed’s 2% goal, but this CPI could change all that. The 3.3% core reading was the smallest since April 2021, and the so-called super core inflation – core services less shelter – was the lowest level in nearly three years. The June CPI report should give the committee confidence that the disinflation narrative is tracking and that rate cuts should begin in September." – Ivan Gruhl, co-chief investment officer at Avantax

"Today's data provide a welcome indication to the Fed that inflation is indeed coming down after several hot monthly numbers at the start of the year. Despite today's favorable CPI report, a rate cut at the Fed's meeting on July 31 remains unlikely. In the absence of a meaningful uptick in inflation in July or August, we would anticipate a rate cut at the September meeting. Overall, we see an economy that is weakening but not in imminent risk of recession. Today's report should be supportive of both equities and bonds." – David Royal, chief financial and investment officer at Thrivent

"June headline prices fell for the first time in over two years due to declines in energy and vehicles prices and substantial cooling in shelter price increase. This is great news when combined with last week's report on labor market moderation to consider more relaxation on monetary policy than anticipated. The federal funds rate dot plot from the June summary of Projections indicates that the Federal Open Market Committee (FOMC) members are split on one or two rate cuts this year. If the trend in inflation in the previous two months continues, the likelihood of having two rate cuts this year increases." – Dawit Kebede, senior economist at America's Credit Unions

"This morning's inflation report was much better than expected, showing a decline in headline inflation driven by lower energy costs. Core inflation also posted its smallest monthly gain since August 2021, helped by a slowdown in shelter growth and lower auto prices. While CPI readings remain high relative to the Fed's 2% target, they have come down sharply and are moving in the right direction. Overall, it's a very positive report for the Fed, which increases the likelihood of rate cuts in the second half of the year, with the September FOMC meeting firmly in play." – Mike Cornacchioli, senior vice president for investment strategy at Citizens Private Wealth 

"Powell has been very careful to leave the Fed's options open when it comes to rate decisions. He refuses to give any indication whether there could be future cuts or even hikes but has been clear that he wants to see more good data to strengthen the Fed's confidence that inflation is making its way to 2% before deciding to cut rates. I feel the print this morning would be considered good data even by Powell's standards. In addition to the data this morning we've been some cooling in the labor market, the tightness of which has been another hurdle that Powell has mentioned in the past, so when taken together the odds of future rate cuts become more realistic. The Fed doesn't rely just on the CPI report but should be indicative of a larger disinflation narrative when Core PCE, the Fed's preferred gauge, comes out on July 26. There are still two more inflation and jobs reports before the next meeting in September but should the disinflation progress stay on its current path there is a real possibility for multiple cuts in the latter part of the year rather than the one that was previously being priced in." – Clayton Allison, portfolio manager at Prime Capital Investment Advisors

"Investors have waited for a long time for shelter to soften and they got it in June. Given rising inventories in housing, this sizable component of the price index is finally starting to give the Fed what it needs to see for rate cuts. Goldilocks is here and a September cut looks more likely than ever." – David Russell, global head of market strategy at TradeStation

"Combined with the weaker than expected June jobs report, today's inflation reading builds a stronger case for a Fed rate cut in the coming months. It remains unlikely that the Fed will move at its meeting later this month, but if the dual trends of a weakening labor market and lower inflation continue, it will likely put the first rate cut in years firmly on the table for the FOMC's September gathering." – Eric Merlis, managing director and co-head of global markets at Citizens

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U.S. nonfarm payrolls increased by 206,000 last month, the Bureau of Labor Statistics said Friday, or essentially in line with economists' forecast for the creation of 200,000 jobs. Additionally, the blowout May jobs report was revised lower to 218,000 new hires from the 272,000 previously reported.

The unemployment rate, which is derived from a separate survey, ticked up to 4.1% in June from 4% the prior month. Economists forecast the unemployment rate, which is at half-century lows, to remain unchanged.

In another dovish development for rate policy, wage pressures remained static month-over-month. Average hourly earnings increased 0.3% – or the same rate reported in May – to match economists' forecast.

"Under the surface of the stronger-than-expected headline nonfarm payroll gain, this was a soft employment report that bolsters the case for a September rate cut from the Fed," writes Scott Anderson, chief U.S. economist at BMO Capital Markets. "We now have definitive evidence of U.S. labor market cooling with a somewhat alarming rise in the unemployment rate in recent months that should give policymakers 'more confidence' that consumer inflation will soon return to the 2.0% target on a sustainable basis."

Market participants are eagerly awaiting the Fed's first quarter-point cut, which will bring interest rates down from a 23-year high. Although the Federal Open Market Committee (FOMC) signaled just one cut this year at the Fed's June meeting, a slowing labor market and easing wage pressures have increased the odds of the central bank turning more dovish over the next couple of months.

As of July 5, futures traders assigned a 71% probability to the FOMC enacting its first cut in September, up from 58% a week ago, according to CME Group's FedWatch Tool. Meanwhile, the probability of the first cut coming in December dropped to 23% from 31% a week ago. 

With the June jobs report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

June jobs report: The experts weigh in

"Today's jobs report is welcome news for the Fed, as it shows continued signs of softening in the labor market and supports other signs of a slowing economy.  The rise in the unemployment rate to 4.1%, the highest since November 2021, and the downward revisions of 111,000 jobs for April point to a slowing jobs market, and the data reinforces the probability of a first rate cut in September." – Ivan Gruhl, co-chief investment officer at Avantax

"Combined with a number of weaker economic data points recently, today's jobs report should give the Fed reason to increase its focus on the employment side of its dual mandate. While it is especially difficult to predict what the Fed will do in advance of the election, this morning's data could increase the likelihood of a rate cut as soon as the September meeting. A labor market that is loosening but still solid, combined with impending rate cuts, could provide a backdrop for continued strength in the equity market." – David Royal, chief financial and investment officer at Thrivent

"On net, the job market looks considerably cooler in the June report than in May, and the unemployment rate at 4.1% is above where the median Fed policymaker projected it at year-end when they compiled economic projections last month. The June jobs report was pretty good. The unemployment rate edged higher, but isn't high by historical comparison. And wage growth continues to outpace inflation. The labor market's cooling trend is quite clear. If inflation holds in its recent range, the Fed is likely to make an initial rate cut at the following decision, in September." – Bill Adams, chief economist at Comerica Bank

"Despite the unemployment rate ticking up to 4.1%, it is only about half-a-percent higher than its historic low last year, continuing to show the resilience of the U.S. economy. Given this month marks the one-year anniversary of the last rate hike, we would expect tighter conditions to be having a more drastic effect on the consumer and labor market. Given this strength, the Fed is likely to continue its patient approach to rate cutting." – Ben Vaske, senior investment strategist at Orion Portfolio Solutions

"The jobs numbers were modestly below expectations when factoring in the revisions but are still indicative of a healthy labor market. This report absolutely keeps the probability of a September rate cut on the table. This still seems like the most likely outcome. This keeps the upcoming inflation data in the driver's seat for determining the timing of the first cut. This NFP data will neither cause the Fed to take a September cut off the table or force them to cut rates in September even if the inflation data does not continue to show moderation that we have seen recently. Signs of continued moderation of economic growth and the labor market will likely be a positive for equities and high-yield bonds in, at least, the short run. The market's pricing of two cuts in 2024 seems very reasonable." – Greg Wilensky, head of U.S. fixed income and portfolio manager at Janus Henderson Investors

"The latest jobs report is sure to cause fireworks between hawks and doves at the Fed. On the one hand, the labor market continues to cool, enabling the Fed to remain focused on inflation, raising the potential for its first rate cut in September should prices follow suit. On the other hand, the cadence of cooling is accelerating and could pose downside risks to a soft landing for the economy at large." – Noah Yosif, chief economist at the American Staffing Association

"Weakening in private payroll growth points to multiple rate cuts in the second half. Private payroll growth likely will slow even further over the coming months. The trend in jobless claims has continued to deteriorate in recent weeks, hiring and hiring intentions indicators remain depressed, job openings are back to pre-Covid norms, and households have become more fearful that unemployment will rise. Extremely high real interest rates, alongside slowing sales growth, will force more businesses over the coming months to squeeze staffing costs. In addition, the flattening in state and local government revenues over the last year suggests that growth in government payrolls will slow in the second half. Accordingly, we continue to expect growth in total payrolls to drop below 100,000 before the end of Q3 and think that investors are seriously underestimating how quickly the Fed will pivot to reducing rates. After a quarter-point cut in September, we continue to look for half-point easings at both the November and December meetings." – Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics

"Today's jobs report shows a slight softening in the pace and strength of employment despite the solid headline number. This report does not add urgency to the case for a July Fed rate cut. The market will likely respond to the increase in the unemployment rate to 4.1%, which is above the Fed's year-end projection of 4%." – Eric Merlis, managing director and co-head of global markets at Citizens

"The weaker cyclical categories like manufacturing and temp jobs show demand for labor is slowing. We also had higher unemployment rates and negative revisions. The job market is bending without yet breaking, which boosts the argument for rate cuts. Things are not too hot and not too cold. Goldilocks is here and September is in play." – David Russell, global head of market strategy at TradeStation

"The labor market remains strong, even as unemployment hit 4% last month for the first time since January of 2022. Despite downward revisions in previous reports regarding the number of new hires, job growth continues to beat expectations. Given this continued strength, we don't expect the Federal Reserve to consider cutting rates until at least November, especially since inflation, while easing, is still sticky above the Fed's 2% target level." – Joe Gaffoglio, president of Mutual of America Capital Management

"Following a strong jobs report in June, the July report shows continued strength in the labor market driven by increases in government, healthcare and social assistance. This data, combined with the JOLTs report released on Tuesday (8.1 million job openings and 1.2 job openings per job seeker), supports the narrative of a balancing labor market and moderating wage growth expectations." – Patrick Connell, partner and industry sector head at Aon

"The increase in the unemployment rate, especially for those with at least a Bachelor's degree, suggests a modest cooling of the labor market. So far, we don't see apocalyptic signs within the labor market, but investors should be wary when the labor market is supported by government payrolls. The downward revisions to the previous two months is consistent with an economic slowdown. We should expect more rhetoric out of the Fed about labor market conditions and the importance of keeping policy appropriate for their dual mandate." – Jeffrey Roach, chief economist at LPL Financial

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Instead of looking ahead to the next quarter or next year, let’s explore how fast the economy can grow in the long run, this decade and beyond. Over a long stretch of time, small jiggles in GDP growth can spell the difference between broad prosperity and hardship, or between the government being able to pay its debt and getting overwhelmed by red ink.  This special report takes a look at the factors that govern the economy’s potential, and what could alter them. 

Imagine an economic speed limit: The fastest pace growth can maintain without sparking inflation — the sweet spot where jobs are abundant, incomes rise, but price increases stay modest. It’s the benign economic climate the Federal Reserve is forever seeking: Low unemployment. Stable, low inflation. 

The speed limit has two basic pieces: How fast the workforce expands. And how quickly worker productivity grows. We are glossing over a lot. But the simple formula for growth is more workers and more output per worker. Economies with rapidly growing populations can boost GDP by simple increases in the number of new workers. Aging nations can keep GDP rising by finding ways to make workers more productive. Ideally, you have both sources of growth. 

Of the two, workforce growth is simpler to project. We know the number of babies being born each year, average lifespans, average retirement ages, etc. Aside from the hiring surge as the economy reopened from COVID-19, the labor pool in the U.S. is rising about 0.5% per year. It’s been slowing for a long time now. 

In the decade prior to the pandemic, the rate was 0.7%. By the end of this decade, it’s likely to fall to 0.4% per year. By 2045: About 0.2%. Note that the current downtrend includes immigration, both legal and illegal. Future immigration policies could nudge total workforce growth up or down a bit. But the downturn in the domestic birthrate appears entrenched, no matter what. 

Productivity gains are trickier to forecast. But there, the outlook is better. Output per worker had been rising by 1.5% annually for a decade and a half. Lately, it’s drifted higher. The scramble to adopt remote work and sell more goods via the internet during and after the pandemic likely led to efficiency pickups that are still playing out. For instance, replacing some in-person meetings that used to entail time-consuming travel or commutes with videoconferences. Or helping brick-and-mortar stores serve as fulfillment centers for online sales. 

Pushing productivity up is key to lifting long-run GDP growth potential from its current 2% to a healthier level since the labor force is unlikely to grow by more than a tiny fraction of a percent after the post-COVID hiring surge ebbs. 

In earlier times, productivity boosts often came from greater education of the workforce — more people going to college or vocational training programs. Going forward, technological progress is likely to be more important, since education levels in the U.S. are already fairly high. Previously, efficiency gains related to the proliferation of the internet in the 1990s goosed productivity gains, first among manufacturers and then across the services economy in the 2000s.

Economy growth boosters

Artificial intelligence has the potential to be this decade’s internet: A huge technical advance that makes workers far more productive and lifts the economy’s speed limit. While there is undoubtedly lots of hype about AI and how it’s going to transform everything, it does look like a candidate for enabling genuine, far-reaching efficiency gains across many jobs and sectors. 

It’ll take time to play out. Remember, the revolution in digital computing took about half a century from the earliest machines to widespread consumer use. But AI is already ramping up business spending on AI-specific chips for servers and personal devices, as tech companies rush to prepare for a flood of future AI applications. Purchases of the graphical processing units and other gear needed to run AI programs could push up growth in the country’s capital stock (i.e., its combined productive assets, from factories to server farms). Today, growth in capital stock is running at about 2% per year. By decade’s end, it could hit 3%. More and better capital equipment doesn’t guarantee greater worker productivity. But it is generally a precursor that enables firms to get more done per employee. 

Hype aside, there are already early signs of how AI will boost efficiency. One recent study found that software writers who used AI to help write code got an assignment done 56% faster than their counterparts doing all the work themselves. Another showed that admin workers using ChatGPT spent 40% less time on a task. A customer support firm got customer issues resolved 14% faster with AI assistants. These initial anecdotes could be the first harbingers of widespread gains to come. 

Remote work, which mushroomed during the pandemic, is another tech innovation that could get more out of the labor force. It doesn’t work for many types of jobs, of course. And many employers are skeptical about it, even for the knowledge-based office roles that are most amenable to telecommuting. 

Some employers that relied on it during COVID-19 have walked back remote policies, either requiring full-time, in-office work, or hybrid schedules with some time in the office. The upside: Remote work is helping more people juggle jobs and child care. Especially mothers of young kids. The female workforce participation rate has risen a full percentage point in the past two years, mostly due to more hiring of mothers with kids under age 6. It seems that even hybrid schedules make it tenable for more moms to work, which could grow the labor force as population growth slows. The number of jobs involving partial remote work has risen by a third in the past year, to 20 million, while fully remote jobs (13 million) have held steady over that time. 

The economical stakes

Economic figures can sound academic. Let’s make these more practical, by considering the real-world impacts of an economy growing faster vs. slower. A surprising amount is riding on small differences when you compound them over time. 

3% growth makes the national debt a far more bearable problem, for example. The debt, now at a worrisome 99% of GDP (a figure that doesn’t include obligations for Social Security and Medicare), is on track to hit 109% by 2030. With growth of 3% per year from 2025 to 2030, the debt would reach 102% of the larger GDP. Consider how much better a fast-growing economy feels for consumers. Growth averaged 3.8% in the 1990s after the 1990-91 recession. 239,000 jobs were added per month. In the 2010s (2.3% growth rate): Just 194,000 jobs per month. 

Both fiscal stability and broad prosperity depend on growing the economy at a robust pace for the long haul. It’ll take innovation and creativity, but it can be done.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

The central bank's rate-setting committee wrapped up its regularly scheduled two-day policy meeting by keeping the short-term federal funds rate unchanged at 5.25% to 5.5%. More interesting was the quarterly Summary of Economic Projections (SEP), also known as the dot plot, which shows the Federal Open Market Committee's (FOMC) estimated path forward for rates.

Per the dot plot, the Fed now sees just one quarter-point cut coming before year-end, down from the three cuts it forecast in March. Overly optimistic market participants were expecting at least six rate reductions in 2024, but sticky inflation data and a robust labor market forced the Fed to delay its pivot toward easing. As part of that pushed out timeline, the FOMC median forecast now sees four quarter-point cuts in 2025, up from three cuts expected in the previous projections.

A soft May CPI report – and cuts by the European Central Bank and Bank of Canada – have increased pressure on the Fed to begin loosening monetary policy. Equity markets, in particular, are eager for the FOMC to begin cutting rates, as lower rates boost valuations.

As for when will the Fed cut rates? The September meeting remains the betting favorite, with futures traders assigning a 59% probability to the FOMC enacting its first quarter-point reduction at the fall confab. That's up from 47% a day ago, according to CME Group's FedWatch Tool.

With the FOMC's latest rate decision now on the books, we turned to economists, strategists and other experts for their thoughts on what the move means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Interest rates: the experts weigh in

"This is a nothing-burger Fed meeting. They know conditions are improving, but don't need to rush with rate cuts. The strong economy is letting Jerome Powell wring inflation out of the system without hurting jobs. Goldilocks is emerging but policymakers don't want to jinx it." – David Russell, global head of market strategy at TradeStation

"The Fed didn't move on rates, as expected, but their dot plot projections were hawkish, with only one cut projected in 2024 versus three projected back in their March update. However, these dot plot projections likely don't account for the latest May inflation data, which was softer than expected and reversed some of the heat we saw in Q1. We still think the odds are high for two rate cuts in 2024 if the disinflation process continues, as we expect." – Sonu Varghese, global macro strategist at Carson Group

"Four members expect no rate cuts this year – up from two in March – with seven looking for one easing and eight expecting two. No one expects three easings, compared to nine in March. That's quite a shift, not least because it's only June and if payroll growth drops to zero over the next few months while the core PCE run rate returns to target, they'll be easing by a minimum of 75 basis points [0.75 percentage point] this year. The market reaction to the dot plot shows investors are unconvinced by the unexpected hawkishness of the new dots; we think they're right." – Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics

"We continue to look for two Fed rate cuts this year (September and December). Between now and the expected inaugural action, there will be three CPI and PCEPI reports along with three employment reports. There is plenty of time, and data, for the FOMC to shift its assessment from 'modest' further progress to a sufficient degree of 'confidence-building' progress to start cutting policy rates." – Michael Gregory, deputy chief economist at BMO Capital Markets

"The message from the Fed once again is rates will be lower, just not now. The dots moved up, our expectation, and this may not be the last time it happens as we look further out into 2025. The economy is giving mixed signals, and while the 'no landing' scenario is the most likely, investors should expect volatility in both the rates and equities markets as we parse through likely contradictory data in the coming months. We all like to nitpick each economic data point, but when you zoom out, why does the Fed need to cut more than once, if at all? The economy is robust, in particular the hard data." – Jason Barsema, president and co-founder of Halo Investing

"The Fed also released an updated Summary of Economic Projections at this meeting, and investors' attention was expected to be on the 'dot plot.'  Here, the committee made its biggest change, reducing expectations of cuts in 2024 to just 25 basis points [a quarter percentage point] from 75 basis points in March. Following this morning's light CPI report, consensus seemed to be that it could indicate as much as 50 basis points of cuts later this year. One of 2024's cuts was rolled into 2025. The only other notable changes to the SEP were to inflation, which the Fed bumped up estimates modestly for this year." – Jeff Hibbeler, director of portfolio management and senior portfolio manager at Exencial Wealth Advisors

"As anticipated, the Federal Reserve kept rates unchanged in today's announcement. Expectations for an initial rate cut beginning this year increased given softer-than-forecasted CPI data this morning. While the employment component of the Fed's dual mandate continues to remain strong and, with the second component of stable prices showing signs of improvement after a stalling out earlier in the year, an initial rate cut this year is a real possibility. The Fed will remain data dependent and will need to see a trend of multiple months of softening inflation data before they begin to cut rates. Hopes for a Fed executed soft landing remain." – Dustin Thackeray, chief investment officer at Crewe Advisors

"It seems like we finally got a data point that wasn't too-hot-to-dot. The rather mild CPI number (even though the Fed will never fail to remind you of their preference for PCE) seems to have finally brought a rate cut into sight. The Fed referred to these developments as 'modest' and kept their expectations largely still for one rate cut this year. This unexciting rhetoric shouldn't come as a surprise from a Fed that is desperate to retain its most important tool – credibility." – Dann Ryan, managing partner at Sincerus Advisory 

"The CPI report dovetailed nicely with the FOMC decision today which was widely anticipated with no change. The timing for the Fed may be a bit tricky as they likely do not want to move politically and make any actions too close to the U.S. election in order to maintain their appearance of independence. Unfortunately, inflation is not necessarily on a timeline related to the election and will make the timing of any rate cuts tricky." – Steve Kolano, chief investment officer at Integrated Partners

"The FOMC's decision to keep rates unchanged was widely anticipated. The latest CPI data fuels positive sentiment around immaculate disinflation, reinforcing the belief that we are on a 'soft landing' trajectory." – Ken Tjonasam, portfolio strategist at Global X

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The data come too late to affect the Federal Open Market Committee's (FOMC) June meeting, experts note, while stressing that a data-dependent central bank will likely need to see more dovish developments before it enacts its first quarter-point reduction to the short-term federal funds rate.

Nevertheless, the inflation data was good news for market participants and consumers alike. Headline CPI was unchanged last month after rising 0.3% in April, according to the U.S. Bureau of Labor Statistics. That was the slowest rate of headline inflation seen in almost two years. On an annual basis, CPI increased 3.3% in May, down from 3.4% the prior month.

Meanwhile, core CPI, which excludes food and energy costs, increased 0.2% last month after rising 0.3% in April. 

"May's tiny increase in the core CPI – the smallest since August 2021 – should be good enough for the median FOMC participant to envisage two quarter-point reductions in rates in 2024, taking out only one of the three easings projected back in March," wrote Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics.

Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) are looking for sustained evidence that inflation is down to its 2% target before they move to cut the fed funds rate from a 23-year high. The latest CPI report adds a dovish data point to the Fed's deliberations on interest rates, experts say.

As of June 12, futures traders assigned a 61% probability to the first quarter-point cut coming in September, up from 47% a day ago, according to CME Group's FedWatch Tool. 

With the May CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Expert takes on the CPI report

"This report builds the case that inflation has resumed its downward path after an unanticipated surge in the first quarter. If sustained, it will keep Fed rate-cut expectations that we have penciled in for September and December alive and well. Restrictive monetary policy has more work to do, and the Fed will remain patient and watchful. However, today's far softer CPI report will go a long way in making the case that it can soon safely ease off the monetary brake pedal without risking another inflation episode." – Scott Anderson, chief U.S. economist at BMO Capital Markets 

"May CPI was softer than expected across headline and core readings, indicating the disinflation process is playing out. This keeps the Fed on track for cuts in 2024, with the first cut likely coming in September, especially with the unemployment rate at 4% and risk of going higher." – Sonu Varghese, global macro strategist at Carson Group

"Although the inflation trend continues to decline, the rate of change is becoming less and less. This slower rate of change coupled with persistently higher components of CPI such as shelter and insurance costs, is making the Fed rate cut calls difficult to navigate. The U.S. is under pressure to enact 2024 rate cuts considering the ECB's recent rate cut. There is continued concern that Powell is holding a restrictive stance which could fuel potential recessionary fires. The timeline of future rate cuts continues to be evasive. The slower rate of change coupled with conflicting inflationary signs, such as volatile energy costs, continue to push rate cuts further and further into the future. We believe June rate cuts are off the table and one rate cut prior to December 31, 2024 is a possibility, but not definite." – Robert Conzo, CEO and managing director at The Wealth Alliance

"Today's report was largely what the Fed and the markets were hoping for. Inflation was slightly below expectations on both headline and core, both month over month and year over year. Longer-term rates should move lower on this report. Despite today's cooler inflation data, we expect the Fed to hold steady at today's meeting. An interest rate cut later this year looks increasingly likely, however. One implication of moderating inflation and declining interest rates could be a tailwind for small cap stocks. These companies often have higher debt levels and have struggled in a rising rate environment. Lower rates could help broaden a narrow equity market." – David Royal, chief financial and investment officer at Thrivent

"Top to bottom, this was an encouraging inflation report for the markets. And while today's CPI report certainly doesn't guarantee anything, it was enough to quash re-inflation narratives while keeping rate cuts firmly in the discussion this fall." – Ivan Gruhl, co-chief investment officer at Avantax

"May's inflation numbers suggest that prices are trending in the right direction but at an insufficient pace to support relief from interest rates before September. Alongside a robust jobs report indicating few significant weaknesses in the labor market, the Fed has breathing room to keep their high standards for progress on inflation, with a September timeline providing ample opportunity for further data to confirm that prices are moving sustainably toward optimal levels. The recent contraction in headline CPI owing to lower energy prices is an important step in the right direction, as the lower production costs will help drive prices down on both goods and services for consumers." – Noah Yosif, chief economist at the American Staffing Association

"The Fed has quite a bit to consider given today's CPI report coming in flat from the month prior. Markets cheered that it was better than expected and below expectations. The Fed will consider this carefully as they are aware that if they wait too long with rates this high before beginning to cut, it could throw certain sectors that are already experiencing slowdowns into a recessionary environment." – Kathleen Grace, managing member and CEO at Fiduciary Family Office

"Households pulling back on discretionary spending have been noted among a number of earnings reports and we expect that this dynamic will take some of the air out of core goods prices. Shelter inflation slows more gradually, but is a relatively high weight within the CPI measurement that the Fed watches closely. Since the increase in rates is now fully represented in housing data, the lagged impact of shelter disinflation should work its way through CPI numbers and carry through the next few months, further conviction that rate cuts will begin soon." – Sarah Henry, managing director, portfolio manager at Logan Capital Management

"We squarely believe the CPI number was not weak enough to change our view on July's meeting. While September may be on the table, today would have had to be the first of a handful of inflation data prints that went right, which it did. It does remain challenging, however, for inflation to cool with the backdrop of the summer's heat. Let's see what the Fed forecasts this afternoon. This is good news, but we will need more of it." – Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management

"Finally, a surprise to the downside in CPI. Markets should like this news today as movement toward the Fed's 2% inflation target further justifies a nearer timeline for rate cutting. At the same time today, however, market participants will be bracing this afternoon for Powell's release on June's interest rate decision and, more importantly, a read on the Fed's appetite for rate cuts at this point in time." – Ben Vaske, senior investment strategist at Orion Portfolio Solutions

"Inflation is slowing even as the economy accelerates. Lingering pandemic effects like auto insurance are fading and normal cyclical forces are hitting items like energy and transportation. Things are playing out as the Fed hoped, so Jerome Powell will probably be feeling good this afternoon. September could be back in play for a rate cut. The bears have nowhere to run to and nowhere to hide." – David Russell, global head of market strategy at TradeStation

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Kiplinger: How do you see the second half of the year playing out? 

Suzuki: Our base case is for stocks to trend higher until we see signs that earnings are beginning to peak. But there are a few major crosscurrents likely to affect a few parts of the market in different ways. Currently, earnings growth continues to accelerate. 

And critically, it is beginning to broaden — as you’re seeing the baton passed from U.S. mega-cap growth names to other areas of the market, you’ve already started to see performance broaden out. As long as that underlying dynamic persists, it’s very healthy for the market. 

Which areas of the market will carry the baton from here? 

Cheap cyclical sectors, meaning those most sensitive to economic growth. The sectors most likely to drive earnings acceleration from here include energy, industrials and materials. Also, earnings growth should be accelerating for smaller and midsize stocks, and for some areas outside the U.S. — in particular, emerging-markets stocks. 

Emerging markets? Haven’t heard that in a long time. 

They’re extremely cheap and out of favor, having underperformed for over a decade. Low valuation alone is not a good indicator of whether something is an opportunity, but it’s a nice support. Critically for emerging markets, we’re starting to see global economic growth reaccelerate, and that’s reflected in earnings for emerging-markets companies, which are beginning to accelerate more broadly. Also, upward pressure on inflation and commodity prices benefits EM profits. Broad exposure here makes sense — don’t get too caught up in any one country. 

What’s your take on the U.S economy? Are rate cuts from the Federal Reserve off the table? 

I wouldn’t say they’re off the table just yet, but they’re certainly rolling toward the edge. Economic growth is gaining momentum and broadening out, putting upward pressure on inflation and interest rates. We’re probably at the inflection point in the economic cycle, where better growth is no longer unequivocally good. 

There’s a tug-of-war between the benefits for the market of stronger economic growth and stronger earnings and the negative impact of higher inflation, a tighter Fed and rising rates. Some companies will be the beneficiaries of that dynamic; some will be hurt by it. 

Where should investors put their money now? 

Opportunities for returns are generally greatest where the market is less crowded and capital is scarce. Today, U.S. mega-cap growth is where capital is concentrated and valuations are most extreme. The flip side, or the silver lining, is that has created capital scarcity in huge portions of the market. The story of the last 15 years has been all about U.S. mega-cap growth and disinflation. Some of the biggest opportunities now lie at the opposite end of the spectrum. 

Rather than U.S. markets, there are more opportunities internationally. Rather than mega caps, there’s a bigger opportunity in small and mid caps. Rather than growth stocks, there’s more opportunity in cheaper value stocks. Lastly, rather than disinflation beneficiaries, the long-term opportunities lay more in inflation beneficiaries. In terms of U.S. stock sectors, we favor energy, industrials and materials. 

We’ve heard about this rotation of market leadership before, but it has failed to stick. 

There’s nothing new about that story today as opposed to a couple of years ago. A lot of people have been making the same or similar recommendations to buy a lot of these things, and they’ve continued to see these parts of the market underperform — that gets to the timing of when to own these things. The timing really has nothing to do with valuation or sentiment, it’s more a function of earnings fundamentals. 

The good thing for most of these longer-term opportunities is that with earnings on the upswing, the near-term backdrop is also supportive. You just have to be careful about getting over your skis. At some point, when profit growth starts slowing, these areas won’t do as well. 

What’s your earnings-growth forecast for the U.S. market overall? 

Earnings forecasts are more about direction than decimal point for us. For this year, we’re expecting growth in the mid-teen percentages. But you want to be mindful for signs that earnings growth may be peaking — that would be the biggest risk to the market. There’s a lot of earnings momentum now, but as you get out two or three quarters from now, you could see a peak. 

Will the U.S. election have an impact on markets? 

Elections tend to have short-term impacts on market volatility, which makes sense. It’s something that market participants spend a lot of time focusing on as the polls shift and more policy discussions come out of the debates. Most of that is just noise, ultimately. What matters is whether there will be a sustained impact on corporate earnings through policies around fiscal stimulus and spending, or on taxes and tariffs. I don’t know that the ultimate policies are going to be as big as the rhetoric makes them out to be. 

Are you worried about the geopolitical situation? 

In isolation, the impact of geopolitical events tends to be short-lived. They can lead to big market swings, which tend to get washed out within six months or so. Clearly, if companies have more exposure to countries where tensions escalate, the more at risk those companies will be to regulation, taxes, tariffs and the like. 

What else should investors be thinking about now? 

I think in some ways we’re at the height of a de-diversification of portfolios. Every time we’ve had that historically, it hasn’t ended well for investors. They’re shunning diversification, arguably when they need it the most. Seven stocks make up 30% of the S&P 500. T

he U.S. market has gone from 40% of the global market to roughly 64% — a record. As a result, investors are really just making a bet on one part of the market where things are concentrated, both active managers who overweight the U.S and growth-focused parts of the market and index investors who have a passive concentration because that one part of the market has done so well. Instead, investors should be looking to add that diversification into their portfolio — geographically, from a company-size perspective and from a sector perspective.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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The Federal Open Market Committee (FOMC) came into the year penciling in three quarter-point cuts to the short-term federal funds rate. Overly optimistic market participants anticipated at least six rate reductions this year. 

Alas, sticky inflation data and a robust labor market have forced the Fed to delay taking down rates from a 23-year high.

As for when the Fed will actually get around to cutting interest rates? No one knows for sure. But you can take any moves off the table for the next Fed meeting. The FOMC will release its latest policy statement on Wednesday just a few hours after we get the next CPI report. 

Markets and knowledgeable observers say the odds of a cut at the July meeting are remote, as well. True, JPMorgan Chase (JPM) and Citigroup (C) predict a cut coming out of the FOMC's July confab, but the two money center banks are very much in the minority.

If we use a sort of wisdom of crowds approach to forecasting the Fed's pivot toward easing, September remains the betting favorite, with markets essentially calling it a coin flip.

As of June 7, interest rate traders assigned a 47% probability to the Fed making its first quarter-point cut in September, down from 55% a day ago, according to CME Group's FedWatch Tool.

On the other hand, traders lifted the odds of the first rate cut coming in December to 40% from 27% the previous day. 

The bottom line is that the answer to the question of "when will the Fed cut rates" remains as elusive as ever. To get a sense of what the experts are saying about the FOMC's possible paths, we turned to economists, strategists, portfolio managers and other knowledgeable observers. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Fed rate cuts: The experts weigh in

"The May jobs numbers kill off any lingering chance of the Fed cutting interest rates in July, but our base case remains that a run of much weaker prints is coming, enabling a September easing. We continue to look for 125 basis points [or 1.25 percentage points] of easing this year, with a quarter-point cut in September, followed by half-a-percentage-point cuts each at the November and December meetings." – Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics

"The Fed and investors will have to wait for more decisive information to see which way this economy and inflation is ultimately going to break. The ambiguity on the May labor market front will place even more attention on next week's CPI inflation data and how Jay Powell and the FOMC are factoring in the latest numbers into their rate-cut expectations at next week's FOMC meeting." – Scott Anderson, chief U.S. economist at BMO Capital Markets

"The Establishment Survey reported 272,000 jobs created in May, surprising to the upside and making it more difficult for the Fed to cut interest rates soon. This pushes market odds of three cuts down to one, or possibly two, with yields up across the Treasury curve." – Mace McCain, chief investment officer at Frost Investment Advisors 

"[The May] employment data likely will keep the Fed in a wait-and-see mode at its meeting next week. Policymakers will need to see a few slower inflation reports over the summer in order to start cutting rates by the fall, and all eyes now turn to next week's CPI report, to be released on the same day as the conclusion of the FOMC meeting." – Sarah House, senior economist at Wells Fargo Economics

"Inflation appears to be stuck in a range and there will need to be several consecutive months of undeniable proof that it is finally moving down at a clip, rather than a crawl, before any action is taken. This is simply not happening at the moment and there's no reason to suggest it will next month or the month after that. Some commentators also believe the Federal Reserve won't cut interest rates in the run up to an election to avoid appearing politically motivated. We expect that there's a significant risk that we might not see a rate cut until 2025." – Nigel Green, CEO at deVere Group

"A July cut is off the table at this point." – Sonu Varghese, global macro strategist at Carson Group 

"Before Friday morning this week's labor data arrived cooler than anticipated. But the main event – the May jobs report – delivered just the opposite. Markets are responding by sending yields to the nosebleeds, but stocks remain near the flatline despite the masters of fixed-income odds downwardly adjusting prospects of a September Fed cut to a coin-flip. Still, this report provides evidence for hawks and doves alike with blockbuster job growth and robust wage pressures coinciding with an uptick in unemployment." – José Torres, senior economist at Interactive Brokers

"The hot wage figures in the May jobs report underscore our base case that the first Fed rate cut is likely coming in the fourth quarter of this year. Regardless, the nonfarm payrolls numbers should not change the narrative around the fundamentals. Macro indicators have been volatile, but the trends in consumer and corporate data continue to suggest solid demand and that should fuel earnings growth over the next year." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management

"The May jobs report should exterminate any hopes of a rate cut this year." – Sean Snaith, director of the Institute for Economic Forecasting at the University of Central Florida

"We're in a balancing act: yet another month of unemployment under 4% emphasizes the strength of the labor market, while wage growth and consumer power are losing steam. We're cautiously optimistic about the job market's resilience, while also remaining vigilant on potential headwinds to the consumer like higher-for-longer rates. We expect this strong report will dissuade the Fed from lowering interest rates in the near term." – Eric Roberts, executive director and CEO at Fiera Capital U.S.

"The May jobs report bolsters our conviction that underlying growth conditions remain resilient, and we retain our baseline call for just one rate cut in 2024." – Jonathan Millar, senior U.S. economist at Barclays

"A broader view of the labor market, considering information from the Job Opening and Labor Turnover Survey (JOLTS) and weekly jobless claims, would indicate demand for labor is shifting lower. This should limit any impact to the Fed's expected rate path as we still target September as the most likely for an initial rate cut. Next week's FOMC meeting should not have any surprises but, upcoming inflation data takes on added importance based on the higher wage reading in the employment report." – Steve Wyett, chief investment strategist at BOK Financial

"The May employment report, which showed an increase of 272,000 jobs, came in a bit stronger than expected. Chances of a Fed rate cut will likely decline, probably taking July off the table but keeping alive the possibility of a cut or two in the fourth quarter." – David Royal, chief financial and investment officer at Thrivent

"We believe the Fed does want to cut this year, but a cut is unlikely to happen until September at the earliest. It doesn't particularly matter if they start hiking in September or in November, what matters is the cadence from there." – John Kerschner, head of U.S. securitized products and portfolio manager at Janus Henderson Investors

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U.S. nonfarm payrolls increased a whopping 272,000 in May, the Bureau of Labor Statistics said Friday, easily topping economists' estimate for the creation of about 180,000 jobs. 

The unemployment rate, which is derived from a separate survey, ticked up to 4.0% from 3.9%. On an unrounded basis, the unemployment rate, which remains at half-century lows, came to 3.96%, or the 28th consecutive month of sub-4% readings.

"This remarkable streak of unemployment under 4% underscores the persistently tight labor market in the U.S. economy," says Joe Gaffoglio, president of Mutual of America Capital Management. "However, workers could start to see their leverage in the job market reduced and wage growth ease, as new government data shows job openings just hit their lowest mark in three years, and employers filled the fewest number of jobs since 2020."

The better-than-expected jobs report means the central bank won't be lowering the short-term federal funds rate by a quarter of a percentage point at the next Fed meeting, experts say. Chances for a cut at the September meeting – which rose recently thanks to some softness in other labor market data and rate cuts by the European Central Bank and Bank of Canada – also receded.

Fed Chief Jerome Powell and the Federal Open Market Committee (FOMC) entered the year with three rate cuts penciled in for 2024, but the robust labor market and some sticky inflation data are making the central bank's job more complicated.

Market participants are eagerly awaiting the Fed's first quarter-point cut, which will bring interest rates down from a 23-year high. As of June 7, futures traders assigned a 50% probability to the Fed enacting its first cut in September, down from 55% a day ago, according to CME Group's FedWatch Tool.

With the May jobs report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

May jobs report: The experts weigh in

"In aggregate, this report provides more backing for the Fed to keep interest rates unchanged and hold off on any rate cuts for the near future. Action in the bond market over the past couple of weeks tells us that today's stronger-than-expected jobs number caught many investors off guard. The labor market continues to look strong, and wage inflation ticked higher from 0.2% last month to 0.4% in May.  Wage inflation has been a key focus for the Fed, as they have focused on inflation in their dual mandate for policy outlook. Also, we've seen a notable divergence between the household survey and the payroll survey estimates, which is reflected in the unemployment rate reaching 4% for the first time since January of 2022, despite strong payroll gains." – Austin Schaul, head of research at Avantax

"Fireworks came early this year, and the Fed will have to say 'goodbye to July' as job gains were stronger than expected and wage gains were higher than expected. As such, any thoughts of the Fed cutting rates in July have been dashed, and the 'high for longer' narrative remains firmly in place. Going forward, some moderation is still likely. But the Fed is in no position to cut rates soon and will need to revise their projections when they convene next week." –George Mateyo, chief investment officer at Key Wealth

"Even though the unemployment rate rose, the big picture is that it's hard to see the consumer as being weak given the increase in job growth and above average wage growth in May." – Sonu Varghese, global macro strategist at Carson Group 

"Today's jobs numbers were stronger than expected and demonstrate the strength and resilience of the U.S. labor market. All eyes will remain on inflation data as market participants try to predict the timing of a Fed rate change. This report does not add urgency to the case for an imminent Fed rate cut." – Eric Merlis, managing director and co-head of global markets at Citizens

"There was a blip a week ago in the market when GDP and housing data were sharply lower – the market went down on the bad economic news, breaking against the trend over the past year where we have seen 'bad news' be good for stocks because it implies rate cuts could happen soon. It was only a blip though, as we see today the trend has been restored and 'good news' is now bad for stocks as rate cuts become less likely." – Brian Mulberry, client portfolio manager at Zacks Investment Management

"The employment report for May is deceiving. The headline job gain from the establishment survey suggests a robust job market. However, the household survey shows an increased unemployment rate and lower labor force participation. Given the questionable birth/death adjustments in the employment survey, we are leaning more on the message from the household component. That is, the economy is moderating. We are using bond market sell-offs to add duration." – Brad Conger, chief investment officer at Hirtle Callaghan & Co. 

"The latest jobs report also increases the possibility of a soft landing consisting of optimal unemployment levels and decelerating inflation. Any rate cuts by the Fed will have to be impeccably timed to ensure the rate of cooling in labor demand does not happen before the effects of lower borrowing costs have time to be felt throughout the economy." – Noah Yosif, chief economist at the American Staffing Association

"This week the bulls had two steps forward and one step back. Claims and ISM were weak but now payrolls are strong. It continues the confusing narrative on the economy and inflation, but next week we’ll get more clarity from CPI and the dot plot. Today's jobs data might not have much impact in the grand scheme of things." – David Russell, global head of market strategy at TradeStation

"Employers added 272,000 jobs in May, surpassing consensus expectations. The diffusion index surged from 56.6 to 63.4 over the month, indicating widespread hiring across various industries. Average hourly earnings increased from 3.9 to 4.1, reversing the path towards a rate aligned with a 2% inflation target. The report alters the moderating signal observed in April, potentially extending the timeline of a Federal Reserve rate cut." – Dawit Kebede, senior economist at America's Credit Unions

"Today's nonfarm payroll surprise points to the continued, and surprising, strength of the U.S. economy in the face of tighter conditions and other economic data points signaling economic slowdown. While unemployment slightly ticked up to 4% for the first time since January of 2022, the number of jobs added drastically outperformed expectations, adding further complexity to the Fed's pivot timing decision." – Ben Vaske, senior investment strategist at Orion

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The next disruptive force in e-commerce: Low-priced Chinese retailers, muscling in on the U.S. market and elsewhere. Low costs are allowing them to grab a growing market share as inflation-weary consumers hunt for bargains. 

The big players among Chinese e-tailers are Temu, which sells an assortment of goods ranging from T-shirts to appliances at low prices, AliExpress, another cheap general retailer, Shein, the popular fast-fashion dealer and, increasingly, TikTok Shop— the portal for purchasing items on the social media platform known for its short, viral videos and rapid growth. All are seeking new markets outside China as the domestic Chinese consumer economy cools. 

You might be surprised at their U.S. sales. Temu has nearly matched Amazon in terms of its regular monthly U.S. users: 51 million of them, vs. Amazon’s 67 million. Shein (29 million users) and AliExpress (23 million) are becoming giants, too. TikTok Shop doesn’t disclose users but has said that the number of sellers visiting its portal is up to 40% of Amazon’s seller traffic. 

What all these sites have in common — cut-rate prices enabled by low costs of production in China, and a shipping model that lets them avoid the customs duties levied on bulk quantities of imports. The Chinese retailers sell directly to customers and ship items individually or in small batches to stay below the $800 threshold that triggers duties on imported goods. That’s proving to be a boon for freight carriers and could keep air freight rates from going into their normal summertime decline, but it means multiweek delivery times for customers — the cost of duty-free shipping. 

They are also slashing the fees that sellers pay in order to undercut big U.S. sites like Amazon. In fact, there is speculation that Temu loses money on every U.S. sale as it tries to grow its market share. Temu charges sellers just 2%-5% per transaction, and may even subsidize some of them, whereas Amazon typically charges much more. 

The origins of many goods sold on these platforms are questionable, at best. Many items seem too cheap to have been made without some unethical practices. There is suspicion that some are made by slave labor in China’s Xinjiang region, where Beijing operates de facto concentration camps for its Uyghur ethnic minority. 

Ethical considerations aside, expect China’s e-tail giants to keep growing. Both in the U.S. — where they threaten to take market share from players like eBay, Etsy and Target (but likely not from top sellers Amazon and Walmart) — and abroad. Temu in particular is targeting markets in Europe, Mexico, Japan and South Korea as its U.S. growth slows and potential new U.S. tariffs loom.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter. 

Your electric bills are no doubt up a lot. Unfortunately, we see no relief from that, as electricity demand rises to its highest pace in years, and state and federal officials push for a bigger role for renewable energy in the nation’s electric grid. 

After roughly a decade of slow rate rises, electric prices have shot up since 2021. Households have seen a 24% increase from April 2021 to April 2024, a shock for many customers, and a contributor to inflation. 

Utilities are expecting a pickup in demand, especially due to new energy-hungry data centers. In 2022, they were forecasting electricity consumption to rise by 2.6% over the coming five years. But now, they are projecting 4.7% growth in the next five years. 

Data centers whose chips run artificial intelligence are especially energy-intensive, and more are coming. Data centers, in general, account for 4.6% of demand. By 2026, that figure stands to rise to 6%. Meanwhile, more appliances and home systems are switching from natural gas to electricity, and more electric cars are plugging into the grid. Booming construction of chip plants and other high-tech manufacturing facilities is also lifting consumption. For instance, new Intel chip plants in Ohio are expected to tax the Midwest’s grid. 

Rising demand is running into supply constraints
The switch to electricity generated from solar panels and wind turbines requires a lot more transmission lines and other infrastructure to connect than conventional, centrally located power plants. Sunshine and wind are free, but the panels, turbines, copper wires and transformers needed to harness them are expensive. Plus, their intermittent generation patterns require some form of backup power. (Round-the-clock power sources like geothermal and nuclear are increasingly prized by data center owners that want stable supplies.) 

What this all adds up to is higher rates on your future electricity bills, unfortunately. How much higher depends on a lot of factors, such as your region, the price of natural gas (the leading fuel source for generation) and how quickly government officials try to ramp up renewable power. But to be safe, we recommend that you plan on your recent rate increases continuing for the next few years. 

What you can do to save on energy bills
Consider efficiency upgrades where feasible. What exactly that means depends on your home or business’s energy needs, which you know best. But we advise taking a fresh look at any efficiency or conservation ideas. Investments that weren’t cost-effective when power rates were lower may make financial sense now. Homeowners, consider an energy audit to help find the best savings, such as tips on insulation. Note that such audits can qualify for a $150 home improvement tax credit. Also, it may pay to switch from an electric appliance or system to gas, if you have access to cheap natural gas and the cost of installing gas lines is bearable.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.