Inflation cooled markedly last month, the June Consumer Price Index (CPI) showed Thursday, raising the odds that the Federal Reserve could cut interest rates more than once before year-end, experts say.
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.
“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
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