June CPI Drops 0.4% as Inflation Eases, but Fed Rate Path Remains Uncertain

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The latest inflation report could play a crucial role in shaping the Federal Reserve’s decision on whether to raise interest rates at its late-July policy meeting.

U.S. inflation data for June came in significantly below expectations, easing concerns that the Fed could soon resume aggressive rate increases.

The Consumer Price Index (CPI) fell 0.4% in June, compared with economists’ forecasts for a 0.1% decline and following May’s 0.5% increase.

On an annual basis, headline CPI rose 3.5%, below the expected 3.8% gain and down from May’s 4.2% reading.

Core CPI, which removes volatile food and energy costs, remained unchanged in June, missing forecasts for a 0.2% increase and matching May’s pace. Year over year, core inflation increased 2.6%, below expectations of 2.8% and May’s 2.9% reading.

Bitcoin extended its earlier rally after the softer inflation figures were released, climbing to $63,400 and gaining about 2% over the previous 24 hours. U.S. equity futures also moved higher, with Nasdaq 100 futures rising 1.25%.

Treasury yields declined sharply as traders reassessed the outlook for monetary policy. The two-year Treasury yield dropped seven basis points to 4.19%, while the 10-year yield fell five basis points to 4.56%.

The June CPI report carried added significance after Fed Governor Chris Waller suggested a potential near-term rate increase if core inflation failed to show further improvement. Ahead of the release, expectations for a July rate hike had surged, with CME FedWatch showing probabilities climbing as high as 42%, up from just 8% a month earlier.

Attention now turns to Fed Chair Kevin Warsh’s upcoming congressional testimony, where investors will look for further clues on the central bank’s inflation outlook and future rate path.