U.S. inflation cools in June, easing pressure for near-term Fed rate hike
Cooling price pressures in the U.S. are reshaping expectations for monetary policy ahead of the Federal Reserve's late-July meeting. June consumer inflation comes in well below forecasts, weakening a recent market move toward pricing in an imminent rate increase.
Highlights
- U.S. Consumer Price Index drops 0.4% in June versus an expected 0.1% decline, following a 0.5% increase in May.
- Annual CPI rises 3.5% and core CPI 2.6%, both below forecasts, reducing the likelihood of an immediate Fed rate hike at the upcoming July meeting.
- Bitcoin rises to $63,400, up 2% in 24 hours, as softer inflation data eases market concerns about aggressive monetary tightening.
June inflation data shifts rate outlook
As reported by CoinDesk, the Consumer Price Index falls 0.4% in June, compared with economist forecasts for a 0.1% decline and after a 0.5% rise in May.On a year-over-year basis, CPI rises 3.5%, below expectations for 3.8% and down from 4.2% in May. Core CPI, which excludes food and energy, is flat in June against forecasts for a 0.2% increase and after a 0.2% gain in May. Annual core CPI rises 2.6%, compared with expectations for 2.9% and matching the prior 2.9% reading in May.
The inflation report is closely watched because it helps determine whether the Federal Reserve raises interest rates at its late-July meeting. The data also carries added significance after Fed Governor Chris Waller says the previous day that he would favor an immediate rate hike if core CPI does not come down in the latest report.
Market reaction and policy implications
Rate hike expectations had been rising sharply before the release, with July hike probabilities climbing as high as 42% from 8% a month earlier, according to CME FedWatch. The softer inflation figures are likely to pause that shift and reduce pressure for immediate tightening by the central bank.Risk assets respond quickly to the data, with bitcoin extending earlier gains to $63,400, up about 2% over the past 24 hours. Investors are also set to hear further policy signals when Fed Chairman Kevin Warsh begins congressional testimony on the state of the economy roughly 90 minutes after the report.
In our earlier coverage of the June CPI preview, we outlined market expectations for headline inflation to cool from May as easing energy effects helped bring the overall reading down. We also noted that core inflation was projected to stay relatively firm, keeping the Federal Reserve’s late-July decision in focus and leaving investors sensitive to any surprise that could shift rate-hike odds.
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