Inflation Relief

US Inflation Gives the Fed Some Room

US inflation slowed in June, offering some relief after several months of energy-driven price pressure. The Consumer Price Index (CPI) rose 3.5% from a year earlier, but is down from 4.2% in May. Core inflation, which strips out food and energy, slipped to 2.6% from 2.9%.

Gasoline prices fell after the US-Iran ceasefire, giving households a break at the pump and making the inflation report look cleaner. But energy relief can disappear fast, especially as the war has flared up again. Higher fuel costs could start feeding more into shipping and food prices.

The 2% Problem

June's cooler CPI print gives the Fed a little more room to wait, though it's still far from a green light to relax. Inflation is still above the 2% target, keeping pressure on the Fed’s dual mandate: keeping both prices stable and jobs plentiful.

Fed Chair Kevin Warsh made clear in his testimony to the US Congress that prices remain the number one concern on his agenda. He told lawmakers the Fed has "no tolerance for persistently elevated inflation." He also called high inflation an undue burden on households and businesses.

Warsh Steps Into the Spotlight

The CPI report landed just hours before Warsh testified before Congress, giving lawmakers fresh inflation numbers to question him on. He avoided a clear signal on the Fed's next move, sticking with his preference for no forward guidance, meaning fewer hints about where rates are headed.

Instead, Warsh framed the moment as a test of the Fed's credibility, saying the central bank under his leadership would make the inflation surge of the past five years “a thing of the past.” US President Donald Trump repeatedly pressured the previous Fed chair, Jerome Powell, to lower rates. If targeted personally, Warsh said he would continue to do his job, adding that ”the independence of the Fed is sacrosanct."

Markets Still See a Hawkish Fed

For investors, the CPI report softened the inflation story without changing the rate story. CME FedWatch, which tracks trader bets on Fed moves, put the highest odds, 49.8%, on a quarter-point hike by October, lifting the Fed's target range to 3.75%–4.00%.

Markets still see roughly 69% odds of at least one rate hike by October, while a cut is priced at 0%. Cheaper gasoline bought the Fed time, but investors still want proof that inflation is cooling beneath the surface.

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