June CPI May Embolden Fed to Cut Soon

June CPI May Embolden Fed to Cut Soon

Another benign inflation reading is expected.

sumit
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Senior ETF Analyst
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Reviewed by: etf.com Staff
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Edited by: James Rubin

Economists expect more benign inflation news when the government reports the latest consumer price index figures this Thursday.

The core CPI is expected to have grown by 0.2% from May to June, according to the consensus estimate compiled by Bloomberg. 

That would mark the second month-over-month reading of around 0.2% for the consumer price index, a level that is consistent with the central bank’s 2% inflation target.

On a year-over-year basis, the core CPI is anticipated to have grown by 3.4% in June, the same rate as in the prior month. 

Meanwhile, the headline consumer price index—which includes food and energy—is expected to rise by 0.1% month-over-month in June following no change in May, and 3.1% year-over-year in June, down from 3.3% in May.

If economists are right, these figures would give the Fed confidence to cut rates soon—perhaps as early as September.

In addition to cooling inflation, a rising unemployment rate and slower job gains in recent months suggest that the central bank can confidently ease monetary policy without risking rapid price gains. 

The pricing of fed funds futures implies there is a 74% chance that the Fed cuts the interest rate at its September meeting.

There is one more FOMC meeting ahead of that at the end of this month, but markets are currently pricing in only a 5% chance that the central bank slashes rates at that time.

SPY, QQQ Gains Fueled by Rate Hopes, AI

The SPDR S&P 500 ETF Trust (SPY) has benefitted from rising rate cut hopes. The exchange-traded fund hit a fresh all-time high on Monday and is up an impressive 17.5% so far this year. The Invesco QQQ Trust (QQQ) has done even better, with a 21.6% gain as AI-fueled gains in megacap tech stocks help the tech-heavy ETF outperform the broader stock market.

etf.com: SPY three-month performance

The S&P 500 was roughly flat in Monday afternoon trading after soaring to its latest record highs last week, while the tech heavy Nasdaq was slightly in positive territory. 

 

 

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.