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US inflation plummeted to 3% in June, weakening the dollar and highlighting the Fed’s relative success in containing price pressures.
The improvement in Wednesday’s data contrasts sharply with other advanced economies, such as the United Kingdom, where the Bank of England is struggling to keep inflation under control at 8.7%.
Major U.S. stock indexes closed at a 15-month high. Two-year U.S. Treasury yields, which fluctuate with interest rate expectations, fell to a two-week low of 4.72%. The US dollar index against a basket of six currencies hit a 15-month low.
Annual consumer price inflation slowed to 3% in June from 4% in May, the lowest inflation rate since March 2021 compared to expectations of 3.1%.
“After a period of severely high inflation that has eroded consumers’ purchasing power, the heat is waning,” said Bill Adams, chief economist at Comerica Bank.
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Headline inflation is approaching the Fed’s 2% target after peaking at over 9% last year. But core inflation, which offsets volatile food and energy costs, has proven more tenacious, raising expectations that the central bank will need to raise rates further. Core CPI fell further moderately to 4.8% from 5.3% in June data.
“While headline inflation is declining, . There is a distance of “Photographed with employment report [last week], which still likely means further rate hikes. ”
The Fed will raise the base rate from near zero to a range of 5% to 5.25% in early 2022. Officials kept rates on hold at their most recent policy meeting in June and weighed the impact of previous rate hikes. , but said it expects further increases by the end of the year.
Last week’s labor market data also suggested that the Fed’s aggressive interest rate hikes were starting to cool the economy, slowing job growth. But it also underscores persistent inflationary pressures, with unemployment still near multi-decade lows and wage growth well above levels considered consistent with the Fed’s inflation target.
Sophia Drosos, economist at Point72 Asset Management, said the Fed is likely to raise rates later this month, but Wednesday’s data combined with signs of a temporary cooling in the labor market suggest that the Fed’s It reinforces the view that the path is more difficult,” he added. Undecided after July. ”
“What we see is consistent with market tightening expectations receding after the July meeting, but it doesn’t appear necessary to price in room for rate cuts later this year.” Consistent with the trend, it’s probably ‘one time and done’ as the Fed continues to pause, assess information and consider its next course of action,” he said.
While the Fed appears to be nearing the end of its tightening campaign, the BoE and European Central Bank are expected to proceed with several more rate hikes this year. The Bank of England is expected to raise the benchmark rate further by about 0 percentage points this year, to just over 6% by early 2024, according to futures markets. The ECB is expected to raise interest rates by about half a percentage point more this year.
Meanwhile, China’s economy was on the brink of deflation with a flat annual CPI in June, fueling calls for more stimulus.
