The "last mile" of the U.S. Federal Reserve's battle against inflation may have shortened to a last lap after consumer prices fell in June, a long-awaited slowing of shelter cost increases took shape, and markets began pushing down yields on bonds and inflation-protected securities. The consumer price index slid 0.1% last month after being unchanged in May, the Labor Department's Bureau of Labor Statistics said on Thursday. It was the weakest monthly reading since May of 2020, early in the pandemic, while the 3% year-over-year rise was the lowest reading in a year.
Traders reacted swiftly, pricing in about a 90% chance of a September rate cut after the report, up from about 70% earlier, and boosting bets on a second rate cut in December. They also priced in an increase, but still less than 50-50, chance that the Fed will squeeze in a third rate cut by year's end. "The doves have what they need" to cut rates even as soon as the upcoming July 30-31 meeting, said Renaissance Macro Head of Economic Research Neil Dutta. While that may be too abrupt for a central bank that, when possible, likes to flag decisions in advance to let the public adjust over time, he said rate cut proponents "should not leave the table unless (Fed chair Jerome) Powell agrees to make a strong signal" for a cut in September.
Source: Reuters