Will the Fed Hold Off on Raising Rates in the Second Half? [Weekend Money]

Both Headline and Core CPI Slow Down in the U.S.

"Energy, Housing, and Services" All Show Stabilization

Limited Upside for Dollar and U.S. Treasury Yields

The U.S. Federal Reserve (Fed) is expected to keep its benchmark interest rate unchanged in the second half of the year. Analysts say that as inflationary pressures ease, the Fed will feel less burden to tighten monetary policy further, and the upward pressure on the U.S. dollar and Treasury yields will also be limited.

Kevin Wash, Fed Chairman. Yonhap News Agency

According to Kiwoom Securities on the 17th, both headline and core U.S. Consumer Price Index (CPI) figures for June came in below market expectations. The headline CPI rose 3.5% year-on-year, which is lower than both May's figure (4.2%) and market consensus (3.8%). Notably, headline CPI fell by 0.4% compared to the previous month, marking the first month-on-month decline since 2020 and falling short of forecasts. The core CPI also rose 2.6% year-on-year, coming in below expectations, and remained flat compared to the previous month.

This slowdown in inflation was driven by the stabilization of energy prices and diminishing upward pressure from housing and service prices. Energy prices fell by 5.7% month-on-month, while housing costs inched up by only 0.1% compared to May. Service prices excluding housing rent also fell by 0.2% month-on-month, easing concerns about the spread of inflation.

Kim Yoomi, an analyst at Kiwoom Securities, said, "With consumer prices slowing much more than the market expected, concerns about additional tightening by the Fed are expected to soften somewhat. We believe the Fed will keep its policy rate steady in the second half of this year, and easing inflation indicators will act as a factor limiting further upward pressure on the U.S. dollar and Treasury yields."

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