US Monthly Inflation Rate Dips in June, Raising Prospects of Fed Rate Cut

The monthly inflation rate dipped in June for the first time in more than four years, providing further cover for the Federal Reserve to start lowering interest rates later this year.

The monthly inflation rate dipped in June for the first time in more than four years, providing further cover for the Federal Reserve to start lowering interest rates later this year.

The US consumer price index (CPI), a broad measure of costs for goods and services across the US economy, declined 0.1% from May, putting the 12-month rate at 3%, the lowest level in more than three years, the Labor Department reported Thursday.

Moreover, the all-items index rate fell from 3.3% in May, when it was flat on a monthly basis.

Fed’s Rate Cut on the Horizon?

June’s CPI report marked the first monthly decrease since May 2020. Excluding volatile food and energy costs, core CPI increased 0.1% monthly and 3.3% annually, compared to forecasts of 0.2% monthly and 3.4% annually, according to the Bureau of Labor Statistics.

The core rate’s annual increase was the smallest since April 2021. A 3.8% slide in gasoline prices held back inflation for the month, offsetting 0.2% increases in food and shelter prices.

Housing-related costs have been one of the most stubborn components of inflation and constitute about one-third of the weighting in the CPI.

Meanwhile, analysts at The Kobeissi Letter and Kalshi highlighted that the odds of a Fed rate cut by Sept. 2024 have jumped to 83% after June’s CPI inflation report revealed the first negative month-over-month inflation since May 2020.

Crypto and Equities Surge After Cooler CPI Data

The June CPI came in slightly lower than economist forecasts. This was followed by a 1% uptick in bitcoin prices and a 2% gain in ether. Stock futures climbed as the latest CPI report indicated an easing of inflation that exceeded expectations.

The Nasdaq Composite rose by 1.18%, while the NYSE Composite increased by 0.92% in pre-market trading. Bitcoin (BTC) and the wider cryptocurrency market rallied on Thursday, along with major equities, after cooler US Consumer Price Index (CPI) data for June.

While Fed policymakers target inflation at 2% annually, the June CPI report provides further ammunition that the trend in prices is headed in the right direction. The CPI peaked above 9% in June 2022, prompting the Fed to respond with a flurry of interest rate hikes that concluded in July 2023.

Since then, the central bank has held its benchmark borrowing rate between 5.25% and 5.50%, even as inflation has fallen sharply over the past few years.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, interest rate traders have increased the chances of a September rate cut from 68.1% before the reading to 91.2%. Analysts suggest a September rate cut could boost equities and cryptocurrencies by increasing liquidity and risk appetite.

Moreover, the Labor Department reported that weekly jobless claims fell to 222,000, a decrease of 17,000 from the previous week and the lowest level since June 1. Continuing claims nudged lower to 1.85 million.

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