US CPI falls to 3%, lower than street expectations; US stock futures jump

The much-awaited headline consumer price index (CPI) for the US economy came in at 3 % in June, slowing from 3.3% in May and the lowest since December 2023.

The number is below economists’ expectations of 3.1%, which gives a fillip to hopes that the Federal Reserve is on track to cut rates in September for the first time since March 2020.

The June Core CPI, which excludes volatile food and energy prices, rose 0.1% month-on-month, slower than the 0.2% in May.

US stock futures turned from trading in the red before the release to jumping in the green.

What the reading means?

The softening of inflation will bolster the Federal Reserve’s confidence that inflation is on track to move sustainably towards its long-term target of achieving 2%.

Between April 2021 and July 2022, inflation in the US surged from 2.6% to 9.1%, a multi-decade high, as government measures to boost the post-COVID economy resulted in excessive demand.

To combat this, the Federal Reserve increased the Fed Funds Rate from a historic low of 0.25% in March 2022 to a high of 5.5% in July 2023.

With inflation moving towards the Fed’s 2% goal, economists believe it increases the chance of a rate cut at the Fed’s September meeting.

Dot plot projections

The latest dot plot, a collection of key Fed officials' forecasts on the economy, inflation, interest rates, etc., forecasts one interest rate cut in 2024.

The Fed has left rates unchanged, but in a recent testimony to the US Congress, Fed chief Jerome Powell talked about the negative impact of high rates on the US economy and said the central bank will cut wait for inflation to hit 2%.

“In light of the progress made both in lowering inflation and in cooling the labour market over the past two years, elevated inflation is not the only risk we face,” Powell said, adding that “reducing policy restraint too late or too little could unduly weaken economic activity and employment.”