The highly anticipated US CPI for June and the Core CPI for June are set to be released at 08:30 p.m. on July 11th 2024, Thursday, Malaysia time.

Inflation has fallen dramatically from its peak of 9.1% in 2022. Still, the Fed has said it wants more confidence that price pressures are easing towards its 2% target before it begins cutting rates and loosening monetary policy.

Last Friday, The Non-Farm Payrolls data showed a cooling labour market, which was a good print for a rate cut. The S&P 500 rose by 0.72% since that day.

Market watchers expect the June CPI data to further reinforce that confidence.

Chances For a Rate Cut

If the CPI reports meet expectations, it would help confirm that inflation has resumed its descent after an uptick earlier this year.

A gradual decline in inflation could provide the Fed with flexibility to ease policy, potentially as soon as this year, as the central bank aims to bring inflation back to its 2% target.

“Reducing policy restraint too late or too little could unduly weaken economic activity and employment.”

Powell said in remarks for appearances this Tuesday during his testimony on Capitol Hill, as he also emphasized that:

“More good data would strengthen our confidence that inflation is moving sustainably toward 2%.”

According to the CME FedWatch tool, bond futures markets currently see a 70% probability that the Federal Reserve will implement a 0.25% interest rate cut in September.

Key Factors Driving an Inflation Decline

“June is going to be another good month,” says José Torres, senior economist at Interactive Brokers. According to Torres, some areas of inflation like food, medical care, and transportation costs ticking up, but offset by declines in energy prices and costs for new and used cars, as well as apparel.

Bank of America analysts predict overall core goods prices will continue falling, in part due to lower new car prices as rising inventories lead to more discounts from manufacturers. However, they also caution that core goods inflation could rebound if shipping costs increase in the coming months.

Goldman Sachs analysts expect rent inflation and owners' equivalent rent inflation to slow, as the gap between rents for new and existing tenants narrows. This easing of shelter inflation in the months ahead "should add to the Fed's confidence on the inflation outlook," according to Bank of America, potentially paving the way for the central bank to feel more comfortable cutting interest rates, potentially as soon as this year.