In a relieving turn of economic events, the latest U.S. Consumer Price Index (CPI) data has revealed a deflationary trend for June 2024, marking a -0.1% month-over-month change. This deflationary print stands in stark contrast to the inflationary pressures that have characterized much of the past few years. This marks the first monthly price decline since spring of 2020 when COVID-19 shocked markets. 

While the Fed was able to reign in rapidly rising prices through aggressive rate hikes, the unexpected, continued persistence of inflation had been holding the Fed back from lowering interest rates. Jay Powell has indicated they would like to see additional signs of progress on inflation prior to lowering rates, and the June CPI print may have just given them what they needed. 

The odds of a September rate hike have jumped dramatically, and investors are now all but certain a rate cut will now occur by September. Fed Funds Futures are currently pricing an 89.4% likelihood of a 25-basis point rate cut, with the remaining 10.6% betting the Fed will cut by even more. After investors began worrying that we would not see any rate cuts in 2024, the current consensus has come back to pricing in two rate cuts by the end of the year. 

By Ryan Zywotko, CFA, CMT

Director of Investments

CAISSA Wealth Strategies