Prices fell last month for the first time since the start of the pandemic, per the June consumer price index (CPI) inflation report. What do you need to know about the June CPI?
Well, first and foremost, it’s shockingly strong. The CPI actually fell 0.1% in June, better than forecasts of a 0.07% increase. Annually, inflation eased to 3% last month, down from 3.3% in May and lower than projections of a 3.12% rise in consumer prices. It also marks the slowest annual rate since June 2023.
The “core” CPI, which excludes the volatile Food and Energy categories, rose 0.1% in June, it’s smallest monthly increase since August 2021.
Falling fuel costs along with a dip in new and used car prices helped push prices down to their first monthly decline since May 2020.
For a Wall Street that has been anxious and eager for rate cuts this year, the June CPI has shifted sentiments in an important way. Rate reductions have long been predicated on the notion that inflation is on the way to the Federal Reserve’s 2% goal. Unfortunately, inflation has been all over the place this year, frequently hotter than preferred.
June CPI Report Hints at Rate Cuts to Come
With just four more Fed policy meetings set for the year, investors have been split over whether the central bank will opt to cut rates at all this year, especially with the elevated nature of inflation thus far.
The June CPI has thrown that sentiment on its head. The CME FedWatch tool now estimates there’s a more than 90% chance the Fed cuts rates by at least 25 basis points in September.
“With another good CPI print under their belt, the window is open for the Federal Reserve to cut interest rates as early as September, and potentially again in December, assuming the inflation data continues to cooperate,” noted Regan Capital Chief Investment Officer Skyler Weinand.
With inflation seemingly under control, the Fed remains the real point of speculation going forward. Indeed, some analysts believe even a July rate cut would be well justified given the nature of today’s inflation print, although most don’t expect the Fed to act until at least September.
“It would be perfectly reasonable, in our opinion, to cut rates in July; however, the Fed is bound by its forward guidance and backward-looking mantra and won’t move until September,” said RSM US Economist Tuan Nguyen, per CNN Business. “Anything after that will put the economy at serious risk of hitting a hard landing.”
Powell Hints at Rate Cuts to Come at Congressional Testimony
Fed Chair Jerome Powell himself told Congress earlier this week that the U.S. economy has seemingly turned the corner in its fight with inflation.
“After a lack of progress toward our 2% inflation objective in the early part of this year, the most recent monthly readings have shown modest further progress,” Powell recently told the Senate Banking Committee. “More good data would strengthen our confidence that inflation is moving sustainably toward 2%.”
Well, if “more good data” is what Powell wants, it’s certainly what he got today. The June CPI solidifies the country’s disinflationary trajectory. Whether this proves to be the difference maker for the July or September rate-cut decisions remains to be seen.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
