The Consumer Price Index (CPI) fell in June for the first time since May 2020, according to the Department of Labor. Prices dropped 0.1% from May and were up 3% compared to a year earlier, with the decline driven by lower costs for gasoline, used cars, and household goods. Core CPI, which excludes food and fuel prices, rose 0.1% monthly and 3.3% annually, marking the smallest increases since August 2021 and April 2021, respectively. Bloomberg columnist Jonathan Levin described the report as “wildly encouraging” and suggested that the Federal Reserve should start lowering interest rates to prevent unemployment from rising.
RSM chief economist Joseph Brusuelas echoed the positive sentiment, stating that the report indicates inflation is nearing the Fed’s target rate of 2% and that the U.S. economy is approaching price stability. Brusuelas expects the Fed to cut rates by 25 basis points in September and December, with potential for larger cuts if the labor market continues to soften. Investors are increasingly betting on rate cuts, with the CME FedWatch tool showing an 84.6% probability of a September cut.
Seema Shah, chief global strategist at Principal Asset Management, also highlighted the significance of the CPI report, noting that it strengthens the case for a September rate cut. Shah pointed out that the smallest gain in core CPI since 2021 gives the Fed confidence that recent high CPI readings were temporary, building momentum for multiple rate cuts this year.
