The Consumer Price Index in the United States slowed more than expected in June, providing further signs of progress Thursday toward returning to the Federal Reserve’s 2% inflation target and maintaining high expectations for a near-term kickoff of interest rate cuts.

Last month, the average increase in a basket of goods and services measured by the Bureau of Labor Statistics was 3% compared to June 2023, slightly cooler than economist forecasts of 3.1%. The June report marks the third consecutive decline in the inflation rate, a trend not observed since May 2023.

June Inflation Report: Key Highlights

Headline CPI inflation slowed from 3.3% in May 2024 to 3% in June 2024 on a year-over-year basis, below the 3.1% expected among economists, as tracked by TradingEconomics.
On a monthly basis, inflation contracted by 0.1% compared to May 2024, decelerating from the previous flat reading and marking the lowest print since May 2020.
Core inflation, which excludes energy and food items, came in at 3.3% year-over-year, below estimates of 3.4% and decelerating from the previous 3.4% reading.
On a monthly basis, core inflation rose by 0.1%, slowing from both the previous and expected 0.2%.

Market Reactions

Prior to the inflation report, traders had assigned a 71% chance of a September rate cut and had factored in two rate cuts by the end of the year.

The lower-than-expected inflation report pleased market participants, bolstering expectations for Fed rate cuts and driving equity futures higher in premarket trading.

Contracts on the S&P 500 Index — broadly tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY) — rose 0.5% by 8:35 a.m. ET, while Nasdaq 100 futures increased by 0.6%.

Treasury yields tumbled, with the 10-year yield down by 10 basis points to 4.18%. The rate-sensitive two-year yield plummeted 11 basis points to 4.51%.

On Wednesday, the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) gained 0.3%, recouping Tuesday’s losses.

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Inflation Slows More Expected To 3% In June, Heightens Expectations For Rate Cuts: Treasury Yields Tumble