US Inflation Cools as Energy Prices Ease, Fed Stays Hawkish

US inflation slowed to 3.5% in June as lower energy prices eased cost pressures, but the Federal Reserve maintained a hawkish stance amid persistent inflation and geopolitical risks.

US Inflation Cools Further

The United States recorded slower inflation in June as easing energy prices helped reduce overall price pressures, although the Federal Reserve maintained a cautious stance on future monetary policy.

According to the Bureau of Labor Statistics, headline consumer price inflation eased to 3.5% year-on-year in June from 4.2% in May, coming in below market expectations of 3.8%. On a monthly basis, consumer prices declined 0.4%, marking the steepest monthly fall since April 2020.

The improvement was mainly driven by slower energy inflation, which eased to 15.7% year-on-year from 23.5% previously after the ceasefire between the United States and Iran helped stabilise energy markets. Energy prices fell 5.7% month-on-month, while gasoline prices plunged 9.7%, offsetting modest increases in food and shelter costs.

Core inflation, which excludes food and energy, also moderated to 2.6% year-on-year from 2.9% in May and remained unchanged on a monthly basis, signalling a gradual easing in underlying price pressures.

Despite the softer inflation data, Federal Reserve Chairman Kevin Warsh reiterated the central bank’s commitment to restoring price stability. During his congressional testimony, he stressed that policymakers would not consider inflation under control based on a single report and reaffirmed the Fed’s determination to achieve its 2% inflation target.

MBSB Research noted that expectations for another policy tightening at the September meeting have eased, with CME FedWatch indicating around a 50% probability compared with 75% previously. However, renewed geopolitical tensions and potential increases in oil prices could reignite inflationary pressures later this year.

Source: MBSB