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LivestreamMenuJune’s inflation report was not what many on the Street expected, in a good way. The consumer price index fell 0.4% in June, its biggest monthly decline since April 2020 . That brought the year-over-year rate to 3.5%, below a Dow Jones consensus among economists of 3.8%. The data gave equities a boost in early trading and sent Treasury yields lower. It also eased fears that persistent inflation would lead the Federal Reserve to increase its benchmark overnight lending rate. The CME Group’s FedWatch tool shows expectations for a July rate hike fell to just 17% from 42% on Monday. That said, traders still expect a rate hike at the September meeting, with a 63% chance that the target rate will be a quarter or a half a percentage point higher. Tuesday’s report had many on the Street breathing a sigh of relief. But some indicated they’re staying on their toes despite the sanguine report: Kay Haigh, global head and CIO of Fixed Income and Liquidity Solutions at Goldman Sachs Asset Management: “The well-behaved CPI print likely lowers pressure on the Fed to hike soon, but the reignition of hostilities in Iran means the prospect of hikes is far from over. Concerns over energy supply through the Strait of Hormuz raises risks to the forward-looking inflation outlook, which could force the FOMC’s hand eventually. Although a path remains for rates to stay unchanged this year, the reescalation of the conflict has narrowed it.” Christopher Rupkey, chief economist at FWDBonds: “You can take those Fed rate hikes off the table for now as the current neutral Fed funds rate of 3.75% is perfectly balanced for the upside and downside risks to the economy and inflation. Bet on it. The markets are.” Ryan Weldon, investment director at IFM Investors: “The June CPI print did not provide the anticipated clarity the market expected, despite the headline number coming in significantly below expectations. The market will be squarely focused on the stickiness of core prices and the recent hawkish commentary from Fed members, especially as the escalation of the Iran conflict has sparked another jump in oil prices.” Josh Jamner, senior investment strategy analyst at ClearBridge Investments: “This print pours cold water on the case for rate hikes in the near-term and should lift risk assets including U.S. equities as rate hikes get priced out of the market and yields across the curve fall.” Skyler Weinand, chief investment officer at Regan Capital: “Tuesday’s weaker-than-expected CPI print suggests the inflation surge driven by the Iran war is fading, but this may just be a temporary relief as tensions have escalated in recent days. The weaker inflation data likely keeps the Fed on hold for now and reduces any rate hike odds, but we remind investors that almost every communication that has emanated from Chair Warsh during his short tenure so far has been hawkish. Warsh is looking to get consumer prices under control and the best tool the Fed currently has is raising interest rates.” Jason Pride, chief of investment strategy and research at Glenmede: “After months of watching for signs that the energy shock would seep into the rest of the [CPI inflation] basket, June offers the clearest evidence yet that it has not.”Read More
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