Inflation Cools to 3.5% in June, Easing Pressure on the Fed

The June Consumer Price Index rose 3.5% year over year, below economists' expectations of 3.8% and down from 4.2% the month before. Prices fell 0.4% from May — the largest monthly decline since April 2020. Core inflation was flat on the month, putting its 12-month rate at 2.6%.

Markets responded quickly: odds of a Federal Reserve rate hike at the July meeting dropped to 17% from 42% the day before, according to CME FedWatch, though traders still see roughly 60% odds of a hike by September. Treasury yields fell and the Nasdaq gained 0.44%, while the S&P 500 and Dow slipped modestly.

Fed Chair Kevin Warsh tempered the enthusiasm, telling lawmakers the data did not mean mission accomplished. The market continues to price in one quarter-point hike sometime in 2026.