#USCoreCPIMissesExpectations

U.S. Inflation Cools Further, But Fed Still Faces Dilemma

Markets had another sigh of relief on Wednesday following the latest U.S. Core CPI report. Core inflation was up 2.7% on a year-over-year basis in June compared to a consensus of 2.8%, down from the prior 2.9%. Also, headline inflation was down on a monthly basis, the first time that’s happened in several years.

The biggest driver of the soft headline reading was energy prices, with fuel costs declining, providing consumers with some relief. However, the story is not quite as clean as some sectors of the economy remain hot. Housing and auto insurance are still being stubborn and driving core services inflation much higher than the Federal Reserve’s target of 2% long-term.

That’s why officials remain on caution mode rather than celebrating prematurely.

The possibility of an immediate rate hike was significantly reduced, Treasury yields moved down, and markets continued to price in a timeline for when the Fed may start cutting rates. As usual, rates expectations remain an important factor to consider for all risk assets, including cryptocurrencies. A cooler inflationary environment may lend support for risk assets, as it potentially could lead to a decline in rates, thereby driving investor appetite for growth assets. But if services inflation continues to be persistent, it is possible that the FED will want to take a further step.

I think the upcoming few weeks for inflation will be key, and if services inflation cools down then we may see some relief.

Let me know your thoughts below. Let us know: Does this latest inflation data mean a bigger change towards lower rates is about to start, or does the fed still plan to wait?

‍#Inflation #GateSquare