MNI US Inflation Insight, Jul'24: Summer Progress Means September Cut

We have published our review of June's CPI report - PDF here.

• June’s CPI data was softer than any analyst estimate foresaw, and will provide Fed policymakers further confidence that the spike in inflationary readings earlier this year has given way to renewed disinflation.
• The breadth and depth of the “miss” was fairly impressive. Closely-eyed “supercore” (ex-housing services) CPI has now printed negative M/M for 2 consecutive months for the first time since 2021.
• While it’s arguable that the low supercore was driven heavily by weak volatile categories (eg airfares), the major tentative breakthrough in June’s report was in housing inflation which saw its softest prints since early 2021. Weak services pressures overwhelmed a slight upside surprise in core goods inflation (which was nonetheless negative), and headline M/M CPI was the lowest since the start of the pandemic in 2020.
• The report was so encouraging from a disinflationary standpoint that it bolstered speculation the Fed may now actually be getting behind the curve as monetary tightening hits the economy with a lag, and could have to cut earlier/in larger magnitude (eg 50bp) at a future meeting were employment to falter further.
• July’s FOMC meeting still looks too early for the first rate cut, but September is now even more firmly the base case, with the totality of data providing scope for 3 consecutive easings to close out the year.
• Friday’s PPI (which will cement the outlook for June PCE) and Chair Powell’s July 15 Q&A appearance could prove crucial in shaping pre-meeting FOMC blackout expectations.
• Powell is likely to offer cautious optimism, with the key to cutting rates now being further evidence that inflation is not just headed to 2% but “sustainably”. For now, it looks very likely that July’s meeting will be used to open the door to a September cut should the July and August inflation data paint a similar picture.