Wall Street comments on US CPI: Inflation is slowing down, it is basically certain that interest rates can be cut at least twice this year

On Wednesday, June 12th, the U.S. Bureau of Labor Statistics released data showing that the U.S. CPI in May increased by 3.3% year-on-year, slightly lower than the previous and expected values of 3.4%; the May core CPI, which excludes food and energy costs, increased by 3.4% year-on-year, lower than the expected 3.5% and the previous value of 3.6%, marking the lowest level in over three years.

Following the report, Wall Street analysts expressed that this CPI data is the positive news that the Federal Reserve has been waiting for, essentially ensuring two rate cuts this year, with the possibility of only one cut now ruled out. While most people predicted a rate cut in September, some analysts believe the Fed will wait until after the U.S. presidential election in November to take action.

Gregory Faranello, Head of Interest Rate Strategy at AmeriVet Securities:

"The CPI data is indeed very good. Today's Fed meeting should steer officials towards two rate cuts in 2024, and the milder CPI readings from now on will make a rate cut in September possible."

Omair Sharif from Inflation Insights:

"The 0.2% increase in core CPI on a month-on-month basis should set the tone for the rest of the year, especially as the long-term expectations for housing costs slowing down are increasingly likely to show up in the next report."

Ira Jersey, Chief U.S. Interest Rate Strategist at Bloomberg, suggested that two rate cuts should occur in November and December:

"Given that this is a Fed-friendly CPI data, especially with the core CPI month-on-month increase of only 0.2%, the bond market's knee-jerk reaction is not surprising. Powell can say at this afternoon's press conference 'we are making slow but steady progress on inflation'. Investors have been asking Fed members if they will change their economic outlook after the CPI release, and today's report may not truly alter expectations. We have always believed that rate cuts in November and December are our baseline scenario forecast, and these data solidify that view."

Lindsay Rosner from Goldman Sachs Asset Management:

"This is good news, but it's just news. A rate cut in June is impossible. We believe the same for July. Today's data is good news for restrictive rates to curb inflation, so a rate cut in September is possible."

Bryce Doty, Senior Portfolio Manager at Sit Investment Associates:

"This is a calm CPI report. This CPI report provides the Fed with flexibility for rate cuts. We still expect the Fed to wait until after the election to take action."

Ana Galvao, Economist at Bloomberg:

"The unexpected downward movement in CPI not only impacts today's market but may also affect asset prices in the medium term. Bloomberg Economics' macro-financial model suggests that the forecast for the two-year U.S. Treasury yield will decline by 15 basis points by the first quarter of 2025."Fitch's U.S. Economic Director Olu Sonola:

"This is undoubtedly a good report, a delightful appetizer as we await the main course of the FOMC later today. The 0.2% increase in core CPI month-on-month is the lowest since September 2021, and if this trend continues in the coming months, it will certainly boost confidence in rate cuts. Although the door for a rate cut in July has closed, it is still possible later this year."

Bloomberg Economics Team:

"The May core CPI reading should convince the Fed that inflation is slowing down. Deflationary trends are widespread in both goods and services categories. We expect core CPI readings in the summer to proceed at a roughly similar pace. Before the September FOMC meeting, there will be three more moderate readings, and we believe Fed officials will be confident in starting rate cuts by then."

Mona Mahajan, Senior Investment Strategist at Edward Jones, also believes that the Fed will need to wait for 2-3 more weak data points before cutting rates:

"This can reset the Fed's plans. Before they have the confidence needed to truly signal rate cuts, they still want to see possibly two to three data points moving in the right direction. We are still waiting for significant declines in housing and rent, as well as monitoring a cooling labor market and wage growth."

Financial media ZeroHedge, on the other hand, believes,

The May CPI data brought good news for bond bulls and the Fed, as both the overall CPI and core CPI were one-tenth lower than expected. The conclusion is clear: the doves are in control, and now the Fed is discussing whether to cut rates three times or two times, ruling out the scenario of only one rate cut this year.

Bloomberg News also stated that the May CPI figures have traders betting on two rate cuts this year, with the first cut in November. Former St. Louis Fed President Jim Bullard said,

"I think this is good news for the FOMC. They have been looking for a softer report, and this time they got it. We need more news moving in this direction to continue advancing accommodative policies. This indeed brings hope to those who have been hoping for rate cuts sooner."

Analyst Cameron Crise pointed out:

The CPI data brought long-awaited downward surprises for bond bulls and the Fed. Both overall and core CPI were 0.1% lower than expected, and considering the gap between actual and forecasted values, this error seems reasonable.

In fact, the increase in the core index was 0.16%, which rounded up to an increase of almost 0.1%. Super-core services excluding housing declined by 0.04%, the first negative growth since September 2021. This makes two rate cuts in 2024 possible and opens the door for more rate cuts priced in by the market in 2025.Chief economist Christopher Rupkey of FWDBONDS,

"We don't yet know if the Fed has successfully achieved a soft landing, but the economy is slowing down, and price pressures are sure to follow. Inflation has turned a corner, and the first-quarter inflation surge looks like an anomaly."

Senior economic advisor Conrad DeQuadros of Brean Capital,

"With the slowdown in most market rents yet to be reflected in the CPI, if the remaining seasonal adjustment is correct, core inflation will sharply slow down in the second half of this year."

However, some analysts have expressed caution. Chief economist Joseph LaVorgna of SMBC Nikko Securities,

"You need another three months of very friendly inflation data to cut rates in September. If the Fed starts easing or talking more about easing, I think the Fed will make it more complicated to bring inflation back to the 2% target."

Asset allocation director Ashwin Alankar of Janus Henderson Investors,

"Until we see more widespread and deeper evidence of disinflation, today's soft data only supports the Fed's precautionary rate cut, not a shift in the Fed's monetary policy towards easing."

Corporate economist Robert Frick of Navy Federal Credit Union,

"Finally, some positive surprises have emerged, with both overall and core inflation exceeding expectations. Energy prices have eased somewhat, but housing costs continue to rise, which remains a major driver of inflation. Unless these housing costs start to decline as anticipated, we won't see a significant drop in the CPI."