Prices Fell in June for the First Time Since 2020. Are Interest Rate Cuts Coming Next? The Bureau of Labor Statistics' latest Consumer Price Index report reveals something that hasn't happened in a very long time: declining consumer prices. Here's what that could mean for interest rates.
By David James
Key Takeaways
- US consumer prices decreased by 0.1% in June, marking the first monthly decline since May 2020.
- Annual inflation rate cooled to 3%, raising hopes for potential Federal Reserve interest rate cuts.
- Falling gas and vehicle prices contribute to slowing inflation, providing relief to consumers and markets.
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In a welcome break from persistent price hikes, US consumers experienced a slight retreat in the cost of living for the first time since the early days of the pandemic. The Bureau of Labor Statistics reported a 0.1% drop in consumer prices in June, bringing down the annual inflation rate to 3% from 3.3%. This decrease, fueled by lower prices in gas and cars, heralds the slowest year-on-year price increase since May 2020, equalling the modest rates seen in early 2021.
The unexpectedly positive inflation data has ignited optimism about a rate cut at the Federal Reserve. Interest rates have been at a 23-year peak. Pundits speculate that cuts could occur as early as September and perhaps once more in December, contingent on these favorable inflation trends continuing, according to Skyler Weinand of Regan Capital.
The prospect of easing inflation has buoyed the stock market and lowered US Treasury yields, suggesting future consumer benefits like reduced mortgage and credit card rates. Investors monitored Dow futures ascending by 80 points, with S&P 500 and Nasdaq futures both edging up by 0.3%.
