In this episode of "Markets with Megan," we dive deep into the June 12th Consumer Price Index (CPI) report and its critical implications for Federal Reserve policy decisions. With inflation metrics closely monitored by market participants, understanding the nuances of this report is essential for grasping the potential directions of bond and equity markets. This blog post provides an in-depth analysis of the CPI report, market reactions, and what it means for future Federal Reserve rate cuts.

The June CPI report reveals a promising picture, marking the lowest month-over-month increase in headline consumer prices since July 2022. This is primarily driven by a significant dip in gasoline prices, which contributed to a flat headline number. Gasoline prices fell sharply, marking the largest decline in five months, which helped to counterbalance inflationary pressures from other sectors. However, core inflation, which excludes volatile food and energy prices, remains slightly above the Federal Reserve's target, registering a 0.2% increase month-over-month.

Despite these encouraging signs, core inflation's persistence above the Fed's target raises questions about the pace and timing of potential rate cuts. The Federal Reserve's meeting later today will be closely watched for insights into their policy stance. The core inflation rate, at 3.4% year-over-year, suggests that inflationary pressures are still present, particularly in areas like shelter prices, which have remained stubbornly high. Shelter costs, which encompass housing expenses, have risen by 5.4% over the past year, highlighting a significant challenge for the Fed in managing inflation expectations.

The market's response to the CPI report has been notably optimistic. Bond yields have dropped significantly, with the two-year yield down by 17 basis points and the ten-year yield down by 13 basis points. This reflects increased expectations for potential rate cuts by September, with the futures market now pricing in a 75% chance of a rate cut. Equity markets have also reacted positively, with significant gains as investors anticipate a more accommodative monetary policy stance.

https://youtu.be/AP-vI9mksig

Disclaimer: material was prepared by Verdence Capital Advisors, LLC (“VCA”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks
or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice. Past performance is not a guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance
that the future performance of any specific investment, investment strategy, or product or anynon-investment related content, made reference to directly or indirectly in these materials will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any
discussion or information contained in this report serves as the receipt of, or as a substitute for, personalized investment advice from VCA. Due to various factors, including changing market conditions and/or applicable laws, the co...