June CPI cools to 3.5%, beating forecasts; Warsh warns work remains

Inflation slowed more than expected in June, but renewed oil disruptions and the Fed chair's cautious tone suggest the reprieve may be short-lived.

The annual inflation rate fell to 3.5% in June from 4.2% in May, beating the 3.8% consensus, as a temporary cease-fire with Iran drove gas prices down 9.7% — but renewed hostilities are already pushing oil back above $80 a barrel.

"This is great news for monetary policy and the Federal Reserve, as the core CPI came down considerably on a year-over-year basis," Eugenio Aleman, chief economist at Raymond James, said. "The only caveat is that this is just one month."

Core CPI, which strips out food and energy, rose 2.6% over the year, down from 2.9% in May and below forecasts. Energy prices fell 5.7% in June, the largest one-month decline since April 2020, while food prices rose 0.2% monthly and 3% annually. Beef prices hit fresh records, with ground chuck at $6.98 a pound, up 14.3% from a year earlier.

The data arrives as Fed Chair Kevin Warsh told the House Financial Services Committee the central bank's work is "not done," with inflation still above the 2% target for 63 consecutive months. Markets now see the Fed holding its benchmark rate at 3.5% to 3.75% at the July 29 meeting, though nine of 18 FOMC participants still project a hike before year-end.

Oil Reversal Threatens to Undo Progress

The June inflation reprieve was driven almost entirely by energy. The U.S. and Iran agreed to a temporary cease-fire that month, sending the national average gas price to $3.86 a gallon from a May peak above $4. But President Donald Trump declared the cease-fire "over" this month, and Iran has again claimed the Strait of Hormuz is closed. The U.S. military said it will reinstate its blockade of Iranian ships. Brent crude rose more than 4% to about $87 a barrel Tuesday, while WTI climbed above $81. Patrick De Haan, head of petroleum analysis at GasBuddy, said the national average could hit $4 a gallon again within seven to 10 days.

Warsh Signals No Rush to Cut

Testifying before lawmakers for the first time since taking office in May, Warsh said he does not want to "over-read" a single data point. "There might be some that look at this morning's data and say, 'Oh, mission accomplished. Everything's swell.' That is not my view," he said. Warsh reaffirmed the Fed's independence from political pressure, telling Rep. Gregory Meeks he is "ready to follow the law" even if President Trump publicly criticizes him. He also announced five task forces to review the Fed's communications, balance sheet policy, data sources, inflation frameworks, and productivity — with recommendations due by year-end.

Economists See Higher-for-Longer Rates

A Wall Street Journal survey of 72 economists conducted July 7-12 found the panel now expects core PCE inflation of 3.2% by year-end, up from 2.9% in the April survey. They raised their GDP forecast to 2.1% from 2.0% and cut the probability of a recession in the next 12 months to 25%, the lowest since early 2025. About 66% of respondents said current Fed policy is appropriately calibrated, while 21% said it is too loose.

IBM's 22% Rout Adds to Tech Jitters

Separately, International Business Machines Corp. tumbled 22% on Tuesday, its worst single-day drop since 1987, after reporting preliminary Q2 adjusted EPS of $2.93 on revenue of $17.2 billion — both below consensus estimates of $3.01 and $17.86 billion. CEO Arvind Krishna blamed a surprise shift in client spending toward servers, storage, and memory chips, saying "numerous large deals failed to close on the timelines we expected." The selloff dragged the Dow down 315 points, while the Nasdaq rose 0.38% on strength in AMD and other chipmakers.

This article is for informational purposes only and does not constitute investment advice.