What does today’s CPI data mean for future rate hikes?

In June, the Consumer Price Index (CPI) continued to fall faster than expected, according to the Bureau of Labor Statistics.

Year over year inflation fell once again in June. CPI y/y remains at 3%, which is .1% lower than what was expected.

Headline inflation rose by .2% in June, .1% short of the expected +.3%. Headline inflation rose .2% m/m vs +.3% expected.

CPI, excluding food and energy does remain higher still. Excluding food and energy, inflation is at 4.8% y/y vs 5% expected. That number, however, is the lowest since fall 2021.

From March 2022 until May 2023 the Fed has voted to raise rates every time they met for a total of 10 rate hikes within a 14 month period. This has been one of the fastest rate hikes in history.

In June the Fed took their foot off the gas, at least temporarily, and voted unanimously to keep rates the same, although they did hint that two more rate hikes are likely coming before years end.

“Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” according to the post meeting statement in June.

“People expected a hawkish pause and they got a very hawkish pause,” said David Russell, vice president of market intelligence at TradeStation. “Given the strong labor market, the Fed has room to crush inflation and they don’t want to miss their chance.”

“Still, policymakers skipped hiking rates so they can monitor the data,” he continuned. “This increases the importance of each incremental economic report. More good news like this week’s CPI and PPI (May) could let traders look past the Fed’s tough talk and see a dovish turn later in the year. Jerome Powell is still a barking dog, but he may be losing his bite.”

These new numbers do suggest that the Fed may hold rates where they are, at least for the time being, rather than hike rates again.

The Fed is scheduled to meet again July 26th and 27th.


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