Inflation Slowdown: June CPI Could Signal Imminent Fed Rate Cuts
Thursday's release of June's Consumer Price Index (CPI) data could be a turning point for Federal Reserve policy. Economists expect the report to show continued deceleration in inflationary pressures, potentially paving the way for interest rate cuts in the near future.
Forecasts suggest headline CPI will show a 3.1% annual increase, which would be the smallest 12-month rise since January. Core CPI, excluding food and energy, is projected to cool slightly to 3.4% annually, with a modest 0.2% month-over-month increase.
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These figures, if realized, would align with Fed Chair Jerome Powell's recent comments about needing more evidence of inflation's return to the 2% target before easing monetary policy. Combined with signs of a softening job market, the stage could be set for the Fed to end its aggressive rate hike campaign.
Bank of America economists Stephen Juneau and Michael Gapen expect the June report to build confidence following May's favorable data. They anticipate continued moderation in shelter inflation, a key component that has remained stubbornly high.
Goldman Sachs has revised its year-end core CPI forecast down to 3.2%, citing "rebalancing in the auto, housing rental, and labor markets." The firm also projects core PCE, the Fed's preferred inflation gauge, to reach 2.7% by December.
Supporting the disinflationary trend are cooling aggregate demand, improving supply chains, and the potential re-anchoring of long-term inflation expectations. However, some caution that cutting rates too quickly could reignite inflationary pressures.
The June CPI data will be crucial in shaping near-term Fed policy debates. A lower-than-expected print could bolster arguments for rate cuts, while higher figures might strengthen the case for maintaining restrictive rates.
As markets await this pivotal report, it's clear that June's CPI release will be a significant factor in determining the Fed's next moves and could have far-reaching impacts on stock prices, consumer spending, and the overall trajectory of the U.S. economy.
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