Inflation Cooled Further in June, Welcome News for the Fed and Consumers
The Consumer Price Index climbed at a moderate pace in June compared with a year earlier and fell on a monthly basis, welcome news for Federal Reserve officials who are watching for further evidence that they have wrestled rapid inflation under control.
Overall inflation was 3 percent in June on a yearly basis, down from 3.3 percent in May, and softer than the 3.1 percent that economists had forecast in a Bloomberg survey.
After stripping out food and fuel prices for a sense of the underlying trend, the “core” price index climbed 3.3 percent compared to year earlier, down from the previous report. And compared to the previous month, prices dropped 0.1 percent, while the core index ticked up only slightly.
In all, the very cool inflation data provided clear evidence that inflation is slowing meaningfully, exactly the kind of progress that Fed officials have been hoping to see as they contemplate when to begin cutting interest rates. The central bank has held borrowing costs at 5.3 percent for the past year, a relatively high setting that is meant to cool the economy by weighing down demand for big purchases that require loans, like houses and cars.
While policymakers came into 2024 expecting to cut them several times, a spate of stubborn inflation numbers early in the year have kept them on hold. But now, evidence is mounting that inflation is truly coming under control, which could pave the way for a rate cut in the coming months.
“This is the inflation report that we’ve been waiting for,” said Neil Dutta, head of economic research at Renaissance Macro. “The important story for the Fed is that this is happening at a time when the unemployment rate has been going up for the last three months, and the trade-offs are shifting.”