US CPI report – London Business News | Londonlovesbusiness.com

The June US CPI report will come as further welcome news to the FOMC, with the data showing a further easing of price pressures, and likely helping to provide further ‘confidence’ that inflation is indeed on track to return towards the 2% price target.

Headline CPI rose by 3.0% YoY, the slowest pace since June 2023, while core prices rose 3.3% YoY, an unexpected cooling from the May print, and the slowest pace since April 2021.

On a month-over-month basis, the first monthly fall in prices since May 2020.

While one inflation report won’t make up policymakers’ minds on its own, the figures add to the body of evidence pointing towards a September rate cut, following last week’s softer-than-expected June jobs report, and coming after Chair Powell’s Congressional testimony earlier this week, in which Powell struck a more cautious tone, nothing how the economy is no longer ‘overheated’ and that the jobs market is ‘fully’ back in balance.

The door to a September cut was already ajar prior to today’s data, with these figures forcing said door open a touch further. Providing inflation continues to behave itself, and cracks continue to appear in the labour market, the first 25bp cut seems likely at the next-but-one FOMC decision, probably followed by a further such cut in December.

This should continue to see the ‘path of least resistance’ lead higher for equities over the medium-term, albeit with Q2 earnings season a key risk to navigate in the ‘here and now’. Nevertheless, even if cuts were further delayed, contrary to what recent rhetoric would suggest, the flexible and forceful ‘Fed put’ remains in place, with policymakers still seeking to ease policy sooner rather than later. Hence, dips are likely to remain relatively shallow, and be seen as buying opportunities.