US Core CPI Falls Below Expectations for Fourth Straight Month; 75% Chance of Fed Rate Cut in September

On June 11, the U.S. Bureau of Labor Statistics reported that May’s CPI rose 2.4% year-over-year and 0.1% month-over-month—slightly below the forecasted 0.2%. Core CPI, excluding food and energy, increased by just 0.1% MoM and 2.8% YoY, the lowest annual pace since March 2021.

Following the data release, the U.S. dollar index dropped about 20 points, while stock futures turned positive. The Nasdaq 100 futures rose by 0.4%. Treasury yields slipped, and spot gold rallied. Interest rate swaps now reflect a 75% probability of a Fed rate cut by September.

Price Breakdown:

• Car and apparel prices declined, suggesting easing pressure on consumer goods.
• Toys and large appliances saw notable price increases due to recent tariff hikes.
• Energy prices fell, with gasoline down 2.6%, helping contain overall inflation.
• Grocery prices edged up 0.3% after a dip in April.

Despite announced tariffs on Chinese goods, their cost impact is not yet fully reflected in consumer prices. Analysts believe either firms are absorbing the costs or the steepest tariffs have not taken effect. Economists warn that if companies begin passing on these costs, inflation may pick up in the coming months.

Outlook:
With inflation under control and a stable labor market, the Fed is expected to hold rates steady in next week’s policy meeting. However, sustained disinflation could open the door to rate cuts as early as September. All eyes are now on the Fed’s updated economic projections.