Key Takeaways
- US headline CPI fell 0.4% in June, significantly lower than the -0.1% forecast, while annual inflation eased to 3.5% from 4.2% in May.
- Core CPI remained flat (0.0% MoM), missing the 0.2% estimate and bringing the annual core rate down to 2.6%, the lowest level in over three years.
- Fed Chair Kevin Warsh signaled a "resolute commitment" to restoring price stability in his first congressional testimony, stating that the inflation surge of the last five years will soon be a "thing of the past."
- Bank of America (BAC) reported strong Q2 earnings with a 27% jump in net income to $9.1 billion and raised its full-year Net Interest Income (NII) guidance toward the upper end of its 6% to 8% range.
- Spot silver prices surged over 3% to $59.52/oz following the cooler-than-expected inflation data, as traders reduced wagers on further Fed rate increases this month.
The US economy received a significant disinflationary signal on Tuesday as the Bureau of Labor Statistics reported that consumer prices fell more than anticipated in June. The 0.4% monthly decline in headline CPI was driven largely by a sharp fallback in energy costs, following a ceasefire in the Middle East that helped stabilize global oil markets. On an annual basis, the inflation rate cooled to 3.5%, providing much-needed relief to households and reinforcing expectations that the Federal Reserve may soon pivot toward easing monetary policy.
Underlying inflation pressures also showed signs of exhaustion, with Core CPI (excluding food and energy) coming in at 0.0% for the month. This brought the annual core rate down to 2.6%, well below the 2.8% consensus estimate. The "cooler" report has led market participants to aggressively recalibrate their expectations for interest rate hikes, with many traders now pricing in a higher probability of rate cuts later this year rather than the previously feared "higher-for-longer" scenario.
In his inaugural appearance before the House Financial Services Committee, Fed Chair Kevin Warsh maintained a balanced but firm tone regarding the central bank's mandate. While he acknowledged that the housing sector continues to lag and household consumption growth is only moderate, he emphasized that the Fed's primary objective is to "get policy right." Warsh noted that if the Fed succeeds, the recent era of high inflation will be viewed as a temporary historical anomaly, though he stopped short of providing explicit guidance on the timing of future rate moves.
The banking sector also showed resilience amid the shifting macro backdrop. Bank of America (BAC) delivered a blowout second quarter, reporting diluted EPS of $1.21 on $31.6 billion in revenue. The bank saw record equities trading revenue of $3.6 billion and a 50% increase in investment banking fees. Consequently, management expressed confidence in their outlook by guiding Net Interest Income (NII) toward the upper end of their previously stated 6% to 8% growth range for the full year.
The combination of cooling inflation and a steady Fed outlook sparked a rally in precious metals. Spot silver rose over 3%, reclaiming levels near $60/oz as the US dollar softened and Treasury yields retreated. Investors appear to be rotating back into yieldless assets as the threat of near-term rate hikes diminishes, despite ongoing geopolitical tensions in the Middle East that had previously pressured industrial metals.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.