"A clean sweep of lower-than-expected inflation metrics confirms our prior forecasts and is likely the most decisive evidence to-date that inflation is sustainably moving toward the Fed’s 2% target. Perhaps the most convincing detail for even the most stubborn hawks was the realization of a long-awaited downshift in shelter prices, which rose just 0.2% month over month (vs 0.5% in the previous report), the tamest print since 2021. Futures markets are now pricing a 90% chance of the first cut happening in September, with a July cut not yet totally off the table. However, July may admittedly be a bit too jarring of a pivot for the Fed’s comfort (even if warranted, in our view) given their recent hawkish talk-track. In any case, with supercore (m/m) turning outright negative and unemployment already above the Fed’s year-end projection, we believe the argument for three potential rate cuts in 2024 has meaningfully strengthened."
Source: Bloomberg, BLS. Chart shows month-over-month percentage change to the U.S. Consumer Price Index shelter and related subcomponents, as of 7/11/2024.
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