June CPI Data Shows U.S. Inflation Cools More Than Expected, Bolstering Rate Cut Expectation

Data shows that the U.S. CPI rose by 3% year-on-year in June, lower than the expected 3.1% increase and May's 3.3% figure; the U.S. CPI fell by 0.1% month-on-month in June, also lower than the previous expectation of 0.1%  increase.

The U.S. core CPI rose by 3.3%  year-on-year in June, falling to the lowest level since April 2021,  lower than the expected 3.4% increase and the previous 3.4% rise; the  U.S. core CPI increased by 0.1% month-on-month in June, the lowest level since August 2021, lower than the expected 0.2% increase and the previous 0.2%.

Specifically, falling gas prices as well as a drop in new and used car prices helped to usher in the overall decline, which marks the first month-on-month decline since May 2020, BLS data showed.

After the data was released, Dow futures rose 80 points. S&P 500 futures went 0.3% higher. Nasdaq futures rose 0.3% as well. US Treasury yields fell, which could be good news for consumers: Loans like mortgages and credit card rates are tied to the 10-year yield.

The moderation of inflation in the United States in June even exceeded the expectations of economists, further continuing the recent trend of slowing price increases. There are strong signs that the economy has cooled down,  which is not enough to cause serious concerns about an economic recession, but it is enough to prompt Federal Reserve officials to change their tone.

According to the CME's FedWatch Tool, the possibility of the Federal  Reserve cutting interest rates at its September meeting has soared over 80%.

Economists are increasingly talking about the risks of an economic slowdown, although the inflation rate is still higher than the 2% target. Recent data on household consumption, construction spending, and service industry activity have all been lower than expected by economists. This has lowered expectations for the economic growth rate for the three months ending in June.

Gregory Faranello, head of U.S. rate trading and strategy at AmeriVet Securities, said that the U.S. economy has weakened, and the inflation rate is also declining. He thinks this is a good situation for the Federal Reserve and expects that employment and inflation data will be more friendly in the coming months, which will lead the Federal Reserve to start cutting interest rates, although it will be a slow and cautious cut.