US Inflation Cools for Third Straight Month at 0.1% in June
In June 2024, the US experienced a significant economic milestone as inflation cooled for the third consecutive month, rising by just 0.1%. This decrease has increased Wall Street's confidence in potential interest rate cuts by the Federal Reserve in September.
CPI Data and Annual Trends
The US Consumer Price Index (CPI), excluding food and energy costs, decreased by 0.1% in June, following a stagnant reading in May. This is the smallest increase in three years, marking the weakest monthly reading since May 2020. Annually, consumer prices rose by 3% in June, down from the 3.3% annual rate recorded in May, marking the lowest in a year.
Major Drivers of Inflation
Several key factors contributed to this cooling trend. Prices for groceries, used cars, and gas either stabilized or declined. Shelter prices, a major component of services, saw a modest increase of 0.2%, the smallest since August 2021. The owners’ equivalent rent, comprising over one-third of the CPI, rose by 0.3%, the slowest pace in three years..
Implications for Federal Reserve Rate Cuts
Fed's Stance on Interest Rates
The Federal Open Market Committee (FOMC), led by Jerome Powell, has maintained its key interest rate at a record high of 5.25% to 5.5% for nearly a year, following aggressive hikes in 2022 and 2023 aimed at curbing inflation by reducing demand through higher borrowing costs.
Market Expectations and Fed’s Response
The consistent cooling of core inflation raised expectations for multiple rate cuts in 2024. However, early 2024's inflationary pressures led the Fed to forecast only one rate cut this year. The latest data, showing inflation well below its peak, supports the notion that the Fed's target of 2% inflation is achievable.
Market Bets on Rate Cuts
Wall Street has reacted positively to the cooling inflation data, with traders now predicting a 90% chance of a rate cut in September, up from 70% earlier. Expectations for a second rate cut in November have also increased, with some forecasting even a third cut by year-end. Major financial institutions like JPMorgan and Macquarie have adjusted their predictions, now expecting initial rate cuts in September.
Conclusion
The cooling of US inflation in June 2024 marks a pivotal moment for the economy, potentially leading to interest rate cuts by the Federal Reserve. This development is a positive signal for both Wall Street and consumers, indicating a gradual easing of price pressures. As the Fed continues to monitor incoming data, the likelihood of rate cuts soon seems increasingly probable, offering hope for a more stable economic landscape.