"New Federal Reserve News Agency" evaluates June CPI: Mild inflation opens the door to rate cuts in September

The growth rates of both the US CPI and core CPI announced this Thursday exceeded expectations, with the year-on-year CPI growth rate slowing from 3.3% in May to 3% in June, the lowest growth rate since June last year, a month-on-month decrease of 0.1%, the first negative growth since May 2020. The core CPI increased by 3.3% year-on-year and 0.1% month-on-month, marking the lowest growth rates since April 2021 and August of the same year, respectively.

Renowned financial journalist Nick Timiraos, also known as the "New Fed News Agency," quickly commented on the June CPI data. His article, titled "Mild Inflation Opens the Door for Rate Cuts in September," pointed out that the June CPI slowing to 3% further continued the recent trend of slowing price increases. The article believes that overall, the CPI report for this quarter shows a general cooling of prices, lower than economists' expectations, in stark contrast to the unexpectedly strong inflation momentum in the first three months of this year.

Before the release of the CPI report, Federal Reserve Chairman Powell stated in a congressional hearing that more evidence of sustained inflation reaching the target is needed to strengthen the Fed's confidence in rate cuts. He said:

"The data in the first quarter did not support this increased confidence. And recent inflation data show some moderate further progress, more good data will enhance our confidence that inflation will continue to move towards 2%."

Powell hinted at the Fed balancing various policy risks, stating that cutting rates too early or excessively could hinder or even reverse the decline in inflation, while acting too late or too little could excessively weaken the economy and employment. He also pointed out that given the progress made in reducing inflation over the past two years, high inflation is no longer the only economic risk.

Timiraos' article on Thursday pointed out that Powell's remarks at the hearing laid the foundation for rate cuts, but investors did not expect a rate cut at the Fed meeting scheduled for the end of this month. Fed officials have not challenged the consensus expectation of a rate cut in public, unless under special circumstances, they are unwilling to catch the market off guard. The bigger question at this month's meeting is how much of a foundation Fed officials have laid for a rate cut in September.

The article also noted that after the release of the June CPI report, investors increased their bets on the Fed cutting rates twice this year, with the likelihood of three rate cuts also increasing, meaning that the Fed could cut rates in September, November, and December this year.

Also on Thursday, after the CPI report was released, Mary Daly, President of the San Francisco Fed and a voting member of the FOMC, said that it might be reasonable to cut rates soon, but she did not express support for a rate cut at the end of this month, stating that "more information needs to be collected."

Daly stated that based on the latest inflation and labor market data, the Fed "may need to make some policy adjustments," but as long as "people understand where we might be heading," the significance of deciding on a rate cut at a particular meeting is not particularly significant Daly said that paying more attention to the labor market is a "fairly significant communication signal," indicating the direction of the Fed's actions. Rather than specifying whether a rate cut will occur in July, September, or later, what is more important is how the data influences the Fed's decision-making and what options the Fed is considering.

Regarding Daly's statement, media commentary suggests that Daly believes there is room for a rate cut, but it is not yet time to act