Right before the release of the June CPI report, Fed Governor Christopher Waller used notably hawkish rhetoric in his latest public address. He stated that if June’s core CPI was hot, the FOMC would need to consider tightening monetary policy in the near term.
That prompted traders to increase their bets that the FOMC might vote to raise interest rates at the Committee’s July 28-29 meeting. June’s CPI report was surprisingly cool. Headline CPI fell 0.4% m/m, marking the first monthly decline in six years (Fig. 4 below). The drop was driven primarily by a 9.7% m/m decline in gasoline prices (Fig. 5). However, the moderation in inflation was broad-based. Core inflation was unchanged m/m, core goods inflation fell 0.1%, and core services inflation was also unchanged (Fig. 6 and Fig. 7). The CPI measure of supercore inflation edged down to 3.1% in June.
While the June CPI report reduced the urgency for the Fed to raise interest rates, an assessment of the broader inflation picture suggests that at least one rate hike remains the base case for this year. Here’s why:
