June's unexpectedly low consumer price index (CPI) inflation figures for the second consecutive month could pave the way for an earlier-than-anticipated interest rate cut by the Federal Reserve.
Headline CPI fell by 0.1% month-over-month, while core CPI rose by 0.1%.
Year-over-year, headline CPI increased by 3% and core CPI by 3.3%, the lowest since April 2021. The report highlighted broad-based disinflation, with declines in core goods prices and a notable cooling in rent and owners' equivalent rent (OER) inflation. This broad disinflation suggests a path to 2% inflation is on track.
Jay Woods, chief global strategist at Freedom Capital Markets (NASDAQ:FRHC), believes that the cooler-than-expected CPI data gives the Federal Reserve the basis to potentially cut interest rates sooner than the expected September decision.
Woods noted that a July cut was unlikely since Fed Chair Jerome Powell did not hint at it during his recent Congressional testimony, but the continued downward trend in inflation suggests that a rate cut could happen by September.
“Next week we will get a lot of Fed Speak, but none more important than Powell’s first public comments since today’s CPI numbers when he is interviewed at the Economic Club in Washington DC on Monday at noon,” Woods said.
Woods notes that this news is boosting the Russell 2000 as investors shift from tech stocks to small-cap stocks.
"The Russell 2000 is getting a much-needed boost as investors are cheering this move by taking profits in the tech stocks that have led the rally and looking for opportunities in the small caps that have lagged," he told Proactive.