Inflation eases to 3% in June — stoking bets on Fed rate cut
US inflation numbers for June came in cooler than anticipated, fueling bets that the Federal Reserve finally will begin to cut interest rate cuts later this year.
The Consumer Price Index rose 3% in June versus a year ago, the Labor Department said on Thursday — less than the 3.3% increase in May and slightly lower than 3.1% increase economists had expected, according to a survey by the data provider FactSet.
Core CPI, which excludes volatile food and energy prices, also came in cooler than anticipated in June. It rose 3.3% year-over-year — a nick under the 3.4% forecasts.
After the report, investors raised wagers that the Fed will cut rates twice this year, with some even placing bets on a third cut by December.
“This is the kind of CPI report the Fed wants to see the feel more confident that inflation is headed back toward their target,” said Bill Adams, chief economist of Dallas-based Comerica Bank.
He added that a rate cut in September is now “quite likely” in light of the fresh data.
Prices fell from the previous month for housing as rents began to ease. Airline tickets and hotel rooms also got cheaper versus a month earlier, as did prices for new and used cars.
Prior to Thursday’s report, optimism had been rising among economists, investors and Federal Reserve officials that inflation was nearly under control.
Chair Jerome Powell and his fellow Fed policymakers nevertheless still sound cautious.
On Wednesday, Powell reiterated that there’s been “considerable progress” in slowing inflation to the central bank’s 2% target.
At the same time, he cautioned that “more good data” would be needed for Fed officials to gain the confidence they need to cut their key interest rate, now at a two-decade high of 5.3%.
And even as overall inflation moderates, such necessities as groceries, rent and health care are much pricier than they were three years ago — a continuing source of public discontent and a potential threat to President Joe Biden’s re-election bid.
Most other measures suggest that the economy is healthy, though slowing: Unemployment is still relatively low, hiring remains steady and many consumers continue to travel, eat out and spend on entertainment.
Yet polls have shown that the cumulative price increases are weighing on Biden’s popularity.
The Fed has kept its key rate unchanged for nearly a year after having aggressively raised it in 2022 and 2023 to fight the worst streak of inflation in four decades.
Its rate hikes have led to costlier mortgages, auto loans, credit cards and other forms of consumer and business borrowing.
Inflation is now far below its peak of 9.1% in mid-2022.
The June inflation data beat the collective forecast of economists, which appears to qualify as another installment of the “more good data” Powell is seeking.
With Post Wires
