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US inflation fell faster than forecast to 3 per cent in June in an encouraging sign for the Federal Reserve as it debates how quickly to cut interest rates from their 23-year high.
The year-on-year rise in the consumer price index was lower than economists’ expectations of 3.1 per cent, according to forecasts compiled by Bloomberg, and followed a 3.3 per cent increase in May.
Treasury yields dropped and stock futures rose after the figures were published, as traders increased their bets on two interest rate cuts this year.
According to LSEG data, the odds of a September cut rose to 92 per cent in the immediate aftermath of the CPI data, compared with 72 per cent beforehand.
The inflation figures from the Bureau of Labor Statistics on Thursday come as the Fed looks for further evidence that price pressures are easing in the world’s largest economy.
Despite market expectations earlier this year of as many as seven interest rate cuts in 2024, the Fed has so far kept its benchmark rate at a range of 5.25-5.5 per cent, the highest since 2001.
After Thursday’s figures were published, yields on two-year US Treasuries, which track interest rate expectations and move inversely to prices, fell 0.11 percentage points to a four-month low of 4.52 per cent, while S&P 500 stock futures rose.
The BLS data also showed that consumer prices fell by 0.1 per cent on a monthly basis, compared with economists’ expectations of a 0.1 per cent increase. It was first time since 2020 that monthly consumer prices had fallen.
Petrol prices fell 3.8 per cent during the month, while a rise in housing-related costs slowed — both factors that contributed to the overall fall in inflation.
Core CPI, which strips out volatile food and energy prices, rose 3.3 per cent on an annual basis, less than the expected 3.4 per cent.
Fed chair Jay Powell told US lawmakers this week that the labour market was showing signs of cooling and that officials were worried about squeezing the economy by holding rates too high for too long.
He added that decisions would be made on a “meeting by meeting” basis.
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