CPI Lowers Risk of July Rate Hike, but Expectations Remain
U.S. June CPI data, showing a 0.4% month-on-month decline in headline inflation and a cooling core rate, sharply reduced market expectations for a July Fed rate hike. This prompted a rally in Treasuries, equities, and crypto assets as near-term monetary policy pressure eased. However, Fed Chairman Kevin Warsh's congressional testimony maintained a hawkish tone, emphasizing no tolerance for persistent high inflation and refusing to signal a policy pivot based on a single month's data. The market's reaction is seen as a trade on reduced immediate hike risk rather than a confirmation of a new easing cycle.
The report highlights that the positive surprise was largely driven by a significant drop in energy prices, particularly gasoline, which is volatile. The key uncertainty lies in whether this slowdown will extend to more persistent components like shelter and core services inflation. For the current asset rebound to be sustained, it will require consecutive months of data confirming a broad-based disinflationary trend. Until then, the June CPI offers a temporary respite but does not eliminate the risk of future Fed tightening.
marsbit07/15 10:30
