Experts say the June Consumer Price Index (CPI) showed that inflation fell significantly last month, raising the possibility that the Federal Reserve may cut interest rates more than once before the end of the year.
Prices fell in June for the first time in nearly two years. The headline CPI fell 0.1% month-on-month, the first decline in 23 months, according to the report. US Bureau of Labor Statistics Economists forecast inflation rose 0.1% from May. On an annual basis, the CPI rose 3.0% in June – down from the 3.4% rise of the previous month – which was higher than estimates of a 3.1% increase.
Core CPI, which excludes food and energy costs, similarly surprised downward, rising just 0.1% in June from the previous month. Forecasts had called for a 0.2% increase.
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Fed Chairman Jerome Powell and the Federal Open Market Committee (FOMC) are looking for solid evidence that inflation is moving decisively toward its long-term target of 2% before they move to cut the federal funds rate from a 23-year high. Experts say the latest CPI report adds a soft data point to the Fed’s deliberations on interest rates.
“Better-than-expected inflation data in several key areas will allow the Fed to talk about policy accommodation in July and possibly allow the Fed to take action in September,” says George Matteo, chief investment officer at . Main wealth “In particular, housing, which has led the way in growth, saw some moderation. Nevertheless, we still see the Fed wanting to gain more confidence before making aggressive rate cuts unless there is stress in the labor market.”
As of July 11, futures traders had an 86% chance of a first quarter-point cut in September, up from 70% a day earlier, according to CME Group. Fadewatch Tool ,
The June CPI report is now on the record, so we reached out 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 comments below, which are occasionally edited for brevity or clarity.
Expert comments on CPI report
(Image courtesy: Getty Images)
“The CPI report showed that prices for consumers are slowing down. The main month-on-month CPI report showed that prices actually fell for the first time in 23 months, by -0.1%. This was less than the forecasted 0.1%. This would be welcome news for the Fed, although Chairman Powell indicated 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 has so far been the main focus for banks around the world, including the Fed. On the other hand, now that interest rates are on the restrictive side, the Fed has to be careful not to stifle growth and push the economy into recession.” – Pete Tibbles, Senior Vice President, Foreign Exchange, Financial Risk Management BOK Financial
“Inflation data today proves that the hot data that came out earlier in the year was mostly an aberration. It looks like we’ve resumed a trend of easing inflation – that’s good news for the Fed. As economic data continues to slow, this is having an impact on cost measures (and also in the labor market, where the unemployment rate is rising). We think the Fed’s rhetoric will become more dovish, and more promising data warrants a cut in September. To be honest, we wouldn’t be surprised if the Fed goes ahead with a quarter-point rate cut in July.” – John Luke Tyner, Portfolio Manager Aptus Capital Advisors
“Broad inflation; The Fed will cut soon. June’s CPI data brings further evidence of broad-based inflation, giving the Fed the green light to ease rates multiple times this year. Prices other than rents for core services remained unchanged for the second consecutive month. Looking ahead, the foundation remains in place for CPI inflation to fall further in the second half of this year. Slack in the labor market is increasing, weighing on wage growth and new hires, while retailers’ margins are under pressure from budget-conscious consumers. The CPI data will not get in the way of the FOMC cutting interest rates later this year in response to the deterioration in the labor market. We expect 1.25 percentage points of relief this year, starting with a quarter-point cut in September. The sooner the better.” – Ian Shepherdson, President and Chief Economist Pantheon Macroeconomics
“Jerome Powell acted just like Kobe Bryant this week, saying the ‘job is far from over’ on inflation. But a lower-than-expected CPI print will make the September doves’ call nearly impossible to ignore. The labor market is no longer considered a source of inflationary pressure, so markets will likely turn to employment data, where any softening is likely to turn volumes on the September noise. Wake me up when it’s over.” – Dan Ryan, Managing Partner Sincerus Advisory
“This report supports the view that we are getting closer to the start of Fed rate cuts. The risk story has become better balanced between a slowdown in inflation and growth, and June data reflected a normalization of the labor market and an easing of price pressures. A soft landing is still in sight. Investors who are still comfortable holding on to excess cash should consider whether it still makes sense. The case for extending the duration is getting stronger, and we see stocks continuing to hit new record highs in the year ahead. Now, attention turns to earnings season to validate that optimism.” – Alice Ausenbaugh, Head of Investment Strategy JP Morgan Wealth Management
“One reason for this drop in inflation was that household consumption, construction spending, and service sector inflation fell short of analysts’ expectations. Another area worth paying attention to is rents – the cost of rent increased by only 0.3% in June. This is the smallest increase in nearly three years. According to Jerome Powell’s last Fed minutes, he needed to see more encouraging economic data before implementing a rate cut. Reversing previous comments, he recognized that the economy is slowing, and it seems they are preparing for a rate cut in September. Although it seems a rate cut in September is more likely, we still have two more inflation prints before the September Fed meeting – anything can happen, and the Fed is closely monitoring the situation.” – Robert Conzo, CEO and Managing Director The Wealth Alliance
“Today’s CPI report is a good scenario for the Fed and could help change Fed Chair Powell’s outlook. Remember that just yesterday Powell testified that he believes inflation is declining, but he was reluctant to say it was moving far enough down toward the Fed’s 2% target, but this CPI could change all that. The 3.3% core reading was the smallest since April 2021, and so-called super core inflation – core services less shelter – was the lowest level in nearly three years. June’s CPI report should give the committee confidence that the deflation story is moving in the right direction and that rate cuts should begin in September.” – Evan Gruhl, co-chief investment officer Avantax
“Today’s data provide a welcome signal for the Fed that inflation is indeed easing after several hot monthly numbers earlier in the year. Despite today’s favorable CPI report, a rate cut is unlikely at the Fed’s meeting on July 31. Absent a meaningful increase in inflation in July or August, we would expect a rate cut at the September meeting. Overall, we see an economy that is weakening but is not at imminent risk of recession. Today’s report should be supportive for both equities and bonds.” – David Royal, Chief Financial and Investment Officer Thrivent
“Core prices fell for the first time in more than two years in June, driven by a drop in energy and vehicle prices and a substantial slowdown in shelter price growth. This, coupled with last week’s report on easing in the labor market, is very good news considering there is more leeway on monetary policy than anticipated. The federal funds rate dot plot from the June estimates summary indicates that Federal Open Market Committee (FOMC) members are split on one or two rate cuts this year. If the inflation trend of the past two months continues, the likelihood of two rate cuts this year increases.” – Dawit Kebede, Senior Economist Credit Union of America
“This morning’s inflation report was much better than expected, showing a drop in headline inflation due to lower energy costs. Core inflation also posted its smallest monthly increase 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 headed in the right direction. Overall, this is a very positive report for the Fed, raising the prospect of rate cuts in the second half of the year with the September FOMC meeting.” – Mike Cornacioli, Senior Vice President of Investment Strategy private property of a citizen
“Powell has been very careful to keep the Fed’s options open in terms of making decisions about rates. He declined to give any indication that there might be a future cut or even a hike, but he has made it clear that he wants to see more good data to reinforce the Fed’s belief that inflation is approaching 2% before deciding to cut rates. I think this morning’s print would be considered good data even by Powell’s standards. In addition to this morning’s data, there has also been some cooling in the labor market, the tightness of which has been another constraint that Powell has mentioned in the past, so when taken together it makes the possibility of a future rate cut more realistic. The Fed doesn’t just rely on the CPI report, but should signal 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 if disinflation is on the rise, that’s a real possibility.” If progress stays on its current trajectory, there is a real possibility of multiple cuts in the second half of the year, rather than earlier on.” – Clayton Ellison, Portfolio Manager Prime Capital Investment Advisors
“Investors have waited a long time for shelter rates to ease and they got it in June. Given the rising inventory in housing, this big component of the price index is finally starting to give the Fed what it needs for a rate cut. Goldilocks has arrived and a September cut looks more likely than ever.” – David Russell, Global Head of Market Strategy TradeStation
“Together with June’s weaker-than-expected jobs report, today’s inflation reading makes a strong case for a Fed rate cut in the coming months. It’s unlikely the Fed will move ahead at its meeting later this month, but if the dual trends of a weak labor market and low inflation continue, it will likely put the case firmly in place for the FOMC’s September meeting for the first rate cut in years.” – Eric Merlis, Managing Director and Co-Head of Global Markets Citizens
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