July 11 (Reuters) - U.S. consumer prices unexpectedly fell in June and the annual increase was the smallest in a year, reinforcing views that the disinflation trend was back on track and drawing the Federal Reserve another step closer to cutting interest rates.
The consumer price index dipped 0.1% last month after being unchanged in May, the Labor Department said on Thursday. It was the second straight month of tame CPI readings, and could help to bolster confidence among officials at the U.S. central bank that inflation was cooling.
In the 12 months through June, the CPI climbed 3.0% and followed a 3.3% advance in May. Economists polled by Reuters had forecast the CPI ticking up 0.1% and gaining 3.1% year-on-year.
MARKET REACTION:
STOCKS: U.S. stock index futures turned 0.1% firmer, pointing to a steady open on Wall StreetBONDS: The 10-year U.S. Treasury yield tumbled to 4.183% and the two-year yield fell to 4.492%FOREX: The dollar index extended a fall to -0.83% and the euro extended its early rise to +0.57%
ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT
"The numbers came in much better than expected, which speaks directly to the possibility of a September rate cut. I think it also brings into question the possibility a July rate cut, although those chances are quite slim. The market is really going to be banking on a September cut."
LOU BASENESE, PRESIDENT AND CHIEF MARKET STRATEGIST, MDB CAPITAL, NEW YORK
"The data finally is fitting into investors' narrative that the Fed is going to cut rates. We had those 2-3 months of hot prints, and now we're seeing a decrease. I think this is the first step in the green light. The next question that comes after this is, is this decrease sustainable? I think we get a glimpse and an answer to that tomorrow with the PPI report. If we see that the PPI is also decelerating, then I think now they've got a green light to cut before the election."
KIM FORREST, CHIEF INVESTMENT OFFICER, BOKEH CAPITAL PARTNERS, PITTSBURGH
“Powell spent the past two weeks emphasizing they (the Fed) are data driven. And I'm going to take him at his word. This data shows that what happened in the first quarter may have been some sort of anomaly and that inflation is headed down. PCE was pointed in the right direction as well. And certainly, another month of this (data) gives them the ability to do cut rates in the September meeting.”
IAN LYNGEN, HEAD OF US RATES STRATEGY, BMO CAPITAL MARKETS (emailed note)
"The net of the data reinforces the dovish messaging from Powell and offers confirmation that the Fed's tighter policy stance is weighing on consumer price inflation … Treasuries are stronger in the wake of the release and we suspect that the net of this week's bond bullish events will set the tone for the coming weeks and embolden dip-buyers as the cooling inflation data sets the Fed up well to begin cutting in September."
