• June CPI came in cooler than expected, easing pressure on the Fed to raise rates.
  • Kevin Hassett suggests the data may allow Fed chair Kevin Warsh to adopt a more dovish stance.
  • Market participants now see a higher chance of rate cuts later this year.

Pressure Eases on the Fed

The latest inflation data has injected a dose of optimism into financial markets, with the June consumer price index rising less than forecast. Core inflation, which strips out volatile food and energy costs, also moderated, reinforcing hopes that the Federal Reserve may be able to pause – or even reverse – its tightening cycle.

According to people familiar with the matter, the White House's Kevin Hassett remarked on Thursday that the report “surely makes Kevin Warsh’s job a bit easier.” Hassett, a former top economic adviser, was alluding to the Fed chair's delicate task of balancing price stability with economic growth. The softer inflation reading, he argued, reduces the urgency for near-term rate hikes and could give Warsh leeway to keep policy accommodative.

Markets React

Treasury yields fell sharply after the data release, while stock index futures climbed. Traders now assign a roughly 60% probability to a rate cut by September, up from 40% before the CPI report. The shift reflects a growing belief that the Fed may be done with tightening – at least for now.

Reached for comment, a Fed spokesperson declined to discuss the data directly, reiterating that policy decisions will be guided by the totality of incoming information. Still, the inflation figure is likely to figure prominently in the central bank's next meeting later this month.

Caution Remains

Not all observers are ready to declare victory. Several policymakers have warned against reading too much into a single month's data. “One swallow does not make a summer,” one regional Fed president said, speaking on condition of anonymity to discuss internal deliberations. The labor market remains robust, and wage growth, though slowing, could still fuel price pressures down the line.

Hassett acknowledged these caveats, but struck a hopeful tone. “We’re seeing signs that the inflation dragon is being tamed,” he said. For Warsh, the challenge now is to convince markets – and the public – that the Fed can sustain this progress without jeopardizing the expansion.

Correction: An earlier version of this article misattributed the initial reaction to Hassett. The quote has been confirmed by aides present at the event.