Wall Street evaluates June CPI: The Fed will change its tone at this month's meeting, it's time to cut interest rates!

The June US CPI released this Thursday showed a comprehensive cooling of inflation: the growth rates of both June CPI and core CPI slowed more than expected, with CPI increasing by 3% year-on-year, a 0.1% decrease month-on-month, marking the first negative growth since May 2020. Core CPI increased by 3.3% year-on-year, a 0.1% increase month-on-month, reaching the lowest growth rates since April 2021 and August of the same year.

Media comments suggest that like May, June's CPI falls into the category of "good data" mentioned by Federal Reserve Chairman Powell, which can give Fed officials confidence in cutting interest rates. The data for June will to a large extent give Powell and other Fed policymakers confidence in cutting rates. It is very likely that starting from September, policymakers will have the opportunity to signal a rate cut at this month's monetary policy meeting, especially considering the three consecutive months of rising unemployment rates.

After three consecutive months of lower-than-expected CPI releases, investors have increased their bets on rate cuts within the year. Market traders have almost fully digested the expectations of rate cuts in September and December, with the probability of a rate cut in November rising to 50%, and even expectations of rate cuts starting in July resurfacing.

Some market observers and analysts from Wall Street institutions believe that June's CPI has laid the foundation for Fed rate cuts later this year, with expectations of a rate cut in September being mentioned multiple times. Economists at Morgan Stanley have brought forward their expected rate cut timing from November to September.

Renowned financial journalist Nick Timiraos, also known as the "New Fed News Agency," commented that the moderate growth in June's CPI is mainly due to the decline in housing-related inflation. The market feels confident about a Fed rate cut, with expectations of a rate cut in September largely reflected in prices, as well as expectations for a second rate cut in December. The market is indicating an increasing possibility of a third rate cut this year.

Timiraos' colleague, another financial reporter Molly Smith, commented that the data further proves that US inflation has resumed its downward trend after soaring at the beginning of the year, while overall economic activity seems to be slowing down. Last week's non-farm payroll report showed that the unemployment rate has risen for the third consecutive month, which should keep the Fed on track for rate cuts later this year.

Neil Dutta, Head of Economic Research at Renaissance Macro Research, commented, "The doves have got what they wanted. It's time for a rate cut."

David Russell, Global Head of Market Strategy at TradeStation, stated that investors have been waiting for weakness in the housing market for a long time, and finally saw it in June. With housing inventory continuously increasing, this significant component of the CPI index has finally begun to provide the necessary information for the Fed to cut rates When the economy and inflation are just right, the possibility of a rate cut in September is higher than ever.

Seema Shah, global strategist at Principal Asset Management, believes that the June inflation data has firmly put the Federal Reserve on the path to a rate cut in September. However, a rate cut in July is still unlikely. This would lead to speculation about whether the Fed knows something about the economy that others do not, and the Fed will still need more evidence of declining price pressures to be absolutely certain of the inflation path. Currently, strong employment data combined with slowing inflation is completely positive for the stock market.

Lindsay Rosner, strategist at Goldman Sachs Asset Management, said that this Thursday's data can be summed up in one word: crucial. From now until the Fed meeting in September, three inflation reports will be released, among which this Thursday's CPI data is crucial in helping the Fed gain confidence that inflation is still heading in the right direction. The economic data heat wave seems to have subsided, following last week's cooling labor market data, we are now seeing cooling inflation data. The cooler environment suggests that the Fed will cut rates in September.

Ali Jaffery, economist at CIBC, pointed out that over the past three months, core CPI has grown at an annualized rate of 2.1%, far below May's 3.3%. This is a substantial downward recovery, making the outbreak of price pressures in the first quarter feel like a distant memory.

Rubeela Farooqi, Chief U.S. Economist at High Frequency Economics, said the Fed will change its tone at this month's meeting. Further price slowdown, coupled with weak labor market conditions, support the message change at the Fed's FOMC meeting this month, opening the door to a rate cut as early as the September meeting.

Skyler Weinand, Chief Investment Officer at Regan Capital, believes that September and December are crucial moments for the Fed, but he also urges investors not to be too complacent about the subsequent rate cut expectations. Although Thursday's CPI data increased the likelihood of two rate cuts by the Fed this year, the market's expectation of five rate cuts within the next 12 months is too optimistic, as next year's inflation situation is unlikely to improve enough to guarantee five rate cuts.

Anna Wong, Chief Economist at Bloomberg Economics, said that the core CPI data for June was very weak, even lower than the "very good" CPI report data for May, highlighting two strong downward forces on inflation: housing rents and car prices. Inflation in these two areas is expected to decrease over time, but due to the offsetting impact of insurance industry inflation, inflation will gradually decline. The CPI, along with evidence of a rapidly cooling labor market, should strengthen the Fed's confidence that the time for a rate cut is approaching. Before the FOMC meeting on September 17-18, two more inflation and employment reports will be released, and they are expected to trigger similar assessments Our baseline forecast is that the Federal Reserve will begin cutting interest rates at the September meeting.

Richard Flynn, Managing Director of Jiaxin Wealth Management, said that the CPI report in June was a bonus for the Federal Reserve and investors eager to see a final rate cut. This is the latest in a series of data releases that continue to lay the groundwork for the Fed to cut rates this year, possibly as early as September. We expect this economic optimism to benefit the market.

Michael Brown, Senior Research Strategist at Pepperstone Group, said that we should continue to see the "path of least resistance (rate cuts)" leading the stock market higher in the medium term, despite the key risks that need to be addressed in the current second quarter earnings season. However, even if the Fed delays further rate cuts in the future, contrary to what recent comments suggest, flexible and powerful "Fed put options" still exist, as Fed policymakers continue to seek an early relaxation of monetary policy. Therefore, any decline in US stocks may still be relatively shallow, and a decline could be seen as a buying opportunity.

Gregory Faranello, Head of US Interest Rate Trading and Strategy at AmeriVet, said that the US economy has weakened and inflation rates have also declined. This is a good situation for the Federal Reserve, and we expect that employment and inflation data in the coming months will be more favorable, which should prompt the Fed to start cutting rates. However, the Fed will act slowly and cautiously