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U.S. Inflation Eases to 3%: Federal Reserve Sees Progress

Payam Javan: The U.S. annual inflation rate decreased for the third consecutive month, coming in below expectations, which signals progress towards the Federal Reserve’s 2 percent target rate. The consumer price index (CPI) for June slowed to 3 percent from 3.3 percent in May, according to the Bureau of Labor Statistics. This marked the 39th consecutive month where the CPI was at or above 3 percent, with consumer prices falling by 0.1 percent month-over-month, contrary to the forecasted 0.1 percent increase. Core inflation, excluding volatile food and energy prices, also eased to 3.3 percent.

The primary factor in the price decline was gasoline, which saw a significant drop of 3.8 percent in June, contributing to the overall 2 percent decrease in the energy index. Despite some inflationary pressures remaining, particularly in shelter costs which increased by 0.2 percent and remained 5.2 percent higher than a year ago, the latest data indicates a cooling trend in inflation. The Federal Reserve’s Survey of Consumer Expectations also showed a decrease in households’ one-year inflation outlook to 3 percent.

Financial markets responded positively to the inflation data, with the leading benchmark index rising before the opening bell. Treasury yields fell, and the U.S. Dollar Index dropped below 105.00. Federal Reserve Chair Jerome Powell emphasized the need for continued positive data to ensure inflation is sustainably moving towards the 2 percent target, suggesting that while recent progress is encouraging, further improvement is necessary before considering interest rate cuts. The Federal Reserve’s future actions remain contingent on ongoing economic data, with the next CPI report expected to show an annual inflation rate of 3.2 percent in July.

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