The week was defined by two softer-than-expected inflation prints. On Tuesday, June CPI fell 0.4% MoM, the first decline in consumer prices since 2020, dragged lower by the sharpest drop in gas prices since 2022. CORE CPI was flat for the month while Wednesday’s PPI report reinforced the picture, rising 5.5% YoY but decelerating from prior months. CORE PPI was reported at 0.2% MoM, below consensus estimates. Together, the prints caused a bull steepening of the yield curve while pushing the probability of a July Fed rate hike below 17%, down from as high as a coin toss as recently as Monday. 

Fed Chair Kevin Warsh testified before the House Financial Services Committee on Tuesday, vowing the Fed has “no tolerance for persistently elevated inflation” and pushing back on any notion of victory despite the soft CPI print. New York Fed President John Williams said there are “encouraging reasons to believe inflation has peaked” and that policy is “well positioned,” while Governor Lisa Cook struck a more hawkish tone, warning she is “prepared to act” if disinflation does not materialize soon. The Fed’s Beige Book, also released Wednesday, described economic activity as growing at a "slight to moderate" pace, with moderate price increases. Some contacts cited the Middle East conflict and tariffs as factors contributing to higher costs.

The Iran conflict remained a persistent backdrop. The U.S. launched additional airstrikes on Iranian missile sites near the Strait of Hormuz, with President Trump pledging to intensify pressure until the waterway is reopened. Iran’s tanker attacks have disrupted “shuttle run” crude trades that had become a key export route for Gulf producers, with two seafarers killed on Tuesday. Trump also reversed course on a 20% cargo fee for Hormuz shipments after pressure from Gulf allies, who indicated they would replace the expected revenue with direct U.S. investments. 

According to research from the non-partisan Urban Institute, more than a quarter of working-age adults who relied on credit cards to buy groceries were either unable to pay their balance in full or missed their minimum payment. About one in ten adults relied on so-called "buy now, pay later" loans to buy groceries, and of those, about a third missed a payment last year. About 20% of working-age adults have had to tap their savings accounts at least once in the last year to pay for groceries. The same report showed that grocery prices have jumped 32% over the last 5 years, making food affordability a top concern for many Americans.

KEY INDICATORS THIS WEEK

Retail sales – rose 0.2%
Next week – New home sales.