Update 795 — June CPI Down by 0.1%
First Monthly Price Drop Since May 2020
The Consumer Price Index (CPI) turned a corner last month, with the report for June released yesterday showing that the cost of goods and services declined nationally on a monthly basis for the first time in over four years. Year-on-year, prices rose 3.0 percent, down from May’s annualized rate of 3.3 percent. The figures open the door for the Fed to cut interest rates, the betting now is, at its September meeting.
The week also saw the announcement of an agreement to amend and advance bipartisan legislation to restrict stock trading by members of Congress, with a markup of the bill scheduled for the relevant Senate Committee in two weeks. We cover these developments, as well as FY 25 appropriations progress and key financial regulatory confirmation hearings in this week’s round-up.
Good weekends, all…
Best,
Dana
Headline
Corner Turned: Month-on-Month Prices Fall in June
In June, inflation fell on a monthly basis for the first time in over four years, headline inflation fell to its lowest level in a year, and a core measure of inflation fell to its lowest level in over three years. This is according to the June consumer price index (CPI) report released by the Bureau of Labor Statistics yesterday morning.
The June report showed that headline CPI fell by 0.1 percent on a monthly basis and increased by 3.0 percent on an annualized basis, falling to its lowest level since last June. Meanwhile, core CPI – which excludes food and energy prices – rose by just 0.1 percent on a monthly basis after increasing by 0.2 percent, 0.3 percent, and 0.4 percent in each of the three prior months respectively. On an annualized basis, core CPI rose by 3.3 percent, continuing its trend downward and falling to its lowest level since May 2021.
Source: Council of Economic Advisers
Energy prices fell by two percent on a monthly basis last month, with gasoline prices falling by 3.8 percent in June after declining 3.6 percent in May. Prices of airline fares, used cars and trucks, and communication also decreased over the month.
These price decreases helped offset price increases in other categories, including food and shelter.
- Food prices rose by 0.2 percent in June, with prices of food away from home rising by 0.4 percent and prices of food at home rising by 0.1 percent over the month. Over the past months, food prices have only increased by very small margins on a monthly basis.
- Housing, or shelter costs — which comprise about a third of the CPI — rose by 0.2 percent on a month-on-month basis in June. Shelter costs have been a key factor in keeping CPI high in previous months. CPI has a lag in reflecting the trends in real-world shelter costs, which industry data has shown to be coming down.
Prices of motor vehicle insurance, household furnishings and operations, medical care, and personal care also increased last month.
Source: New York Times
Yesterday’s June CPI report, showing cooling inflation, followed the release of the June jobs report last week, which showed signs that the labor market may also be cooling. Federal Reserve Chair Jerome Powell has previously said that officials on the Fed’s Federal Open Market Committee (FOMC) would like to see inflation continuing its trend toward the Fed’s two percent target or a slowing of the labor market before it begins cutting interest rates. Together, these reports suggest early signs of both.
Late last year, inflation made slow but generally steady progress downward. With this in consideration, late last year and in early 2024, FOMC officials projected that they would cut interest rates three times this year. Higher-than-expected inflation data in the early months of this year, however, contributed to officials’ decisions to adjust their expectations. In its most recent meeting last month, the median FOMC member projected one 25 basis point cut by the end of this year. Given the latest labor market and inflation data, markets expect that the FOMC may begin cutting rates at their September meeting, but officials will surely continue to monitor new data as they make decisions moving forward. The FOMC will meet next to consider the fate of interest rates – which they have held at the 5.25 to 5.5 percent range for about a year – on July 30 and 31. Recent data suggests that the FOMC is in the final descent of a soft landing and we encourage the FOMC to cut rates quickly given these latest developments.
Other Developments
Senators Move Bipartisan Bill to Ban Congressional Stock Trading
On Wednesday, Senators Gary Peters (D-MI), Jeff Merkley (D-OR), Jon Ossoff (D-GA) and Josh Hawley (R-MO) announced an agreement to advance a bill banning members of Congress from trading stocks through the Senate Homeland Security and Government Affairs Committee (HSGAC) at a July 24 markup. With the agreed-upon amendments, the ETHICS Act is on track to become the first legislation banning stock trading by members of Congress to advance out of a Senate Committee.
The bipartisan group of Senators agreed to advance the Ending Trading and Holdings In Congressional Stocks (ETHICS) Act – a strong bipartisan bicameral bill that 20/20 Vision was proud to endorse when it was introduced by Senator Merkley last year – after amending key aspects of the original text. With the agreed-upon amendments, the legislation would:
- cover assets including securities, commodities, futures, options, trusts, and other comparable holdings.
- require members of Congress, the President, the Vice President, and their spouses and dependent children, to divest all covered investments in 120 days, beginning on the effective date of March 31, 2027.
- ban members of Congress, the President, and the Vice President from buying covered investments on the day of enactment and from selling covered investments 90 days after enactment.
- require covered individuals to have a 90-day cooling off period after leaving service, during which they will not be able to buy new stocks.
- require penalties for violations of the divestment requirements to be the greater amount of either (i) the monthly salary of the covered official or (ii) ten percent of the value of each covered asset in violation of the law.
- raise STOCK Act penalties for non-reporting from $200 to $500 and requires that disclosures under the STOCK Act be public in a searchable database.
This agreement is a bold step towards addressing the inherent conflict of interest that exists when members of Congress engage in trading stocks that their decisions can influence while having access to non-public information. We strongly endorse the agreement and applaud Committee Chair Peters and Senators Merkley, Hawley and Ossoff for their decisive leadership here.
Senate Appropriations Gains as House Hits Road Bump
The House GOP showed its first signs of fracturing in the FY25 appropriations process this week, failing to pass the Legislative Branch funding bill in a 205-213 vote. Up to this point, the House Republican Caucus had remained united in passing its first four appropriations bills along party lines:
- Military Construction and Veterans Affairs
- State and Foreign Operations
- Homeland Security
- Defense
House Appropriations Chair Tom Cole (R-OK) aims to pass all 12 funding bills out of the full chamber before the August recess, a goal that will be increasingly difficult as the House turns focus to more contentious measures. Next week’s recess leaves only two legislative weeks before Cole’s deadline. Still, the House is expected to take up the remaining seven bills when it reconvenes following the Republican convention.
The failed vote in the House comes as the Senate begins its meaningful appropriations work following the approval of 302(b) allocations yesterday – which outline spending caps for each of the 12 Appropriations subcommittees.
While top-line funding levels in the House and Senate are consistent with the caps laid out in last year’s Fiscal Responsibility Act (FRA), there is still a debate over nearly $70 billion in “side deal” funding meant to placate Democrats concerned about the low caps for non-defense discretionary (NDD) funding. Senate Appropriations Chair Patty Murray (D-WA) and Ranking Member Susan Collins (R-ME) have reportedly struck a similar agreement that would add an additional $21 billion for Defense and $13.5 billion for NDD on top of the “side deal” funding designated as emergency spending to circumvent the FRA caps on discretionary spending.
Lead House Appropriator Rosa DeLauro (D-CT) reiterated her demands for parity between additions for Defense and NDD funding in a Dear Colleague letter this week, leaving the future of the Senate additions uncertain. Notably, a scaled-down version of this agreement between Murray and Collins of roughly $14 billion failed to make its way into final legislation last year.
Parallel to the appropriations process are efforts to pass the National Defense Authorization Act (NDAA), which directs defense appropriations to specific programs and purposes. While the House adhered to the cap set in the FRA with an authorization of $884 billion, the Senate Armed Services Committee topline reached $923.3 billion. The additional $25 billion for defense will be a point of contention as the authorization bill heads to the Senate floor and eventually to conference, where the House and Senate versions of the bill are reconciled. The Murray-Collins agreement could signify a will in the Senate to find room for the extra funding in its NDAA bill
Hearings and Markups
Senate Banking Nomination Hearings
On Thursday, the Senate Committee on Banking, Housing, And Urban Affairs held a nomination hearing for the following Biden appointees:
- Christy Goldsmith Romero for Chair and Member of the Board of Directors of the Federal Deposit Insurance Corporation.
- Caroline Crenshaw for re-nomination as Commissioner of the Securities and Exchange Commission
- Kristin Johnson for Assistant Secretary of the Treasury for Financial Institutions
- Gordon Ito for Member of the Financial Stability Oversight Council
The hearing opened with comments from Chairman Sherrod Brown (D-OH), who praised the qualifications of the nominees and emphasized that Romero in particular had twice previously been confirmed unanimously by the Senate, calling for his colleagues to continue that trend and confirm her again. Ranking Member Tim Scott (R-SC) took the opportunity to call out current FDIC Chair Martin Gruenberg’s leadership following revelations of a workplace culture that included sexual harassment, racial discrimination, and other workplace misconduct that had persisted for decades. Senator Scott criticized Gruenberg for not resigning sooner and stressed the importance of the new Chairperson’s role in changing the FDIC’s culture.
The vast majority of questions asked by the committee were focused on Romero. Naturally, many asked Romero about her plans to reform the workplace culture at the FDIC, with Romero promising to “prioritize a complete overhaul of the FDIC’s workplace culture” including by conducting investigations into the allegations and removing staff members if necessary. Senator Mike Rounds (R-SD) asked Romero questions about how she would deal with the proposed new capital rules for big banks known as Basel III endgame. Romero stated that she was open to the reproposal of these rules, stating that “I’m not looking to get something done fast, I’m looking to get something done right.” Romero was also asked how she would respond to the Supreme Court’s overturning of the Chevron Deference, and she responded that she would comply with the laws that exist and would consult Congress if she was uncertain of the intent of a law.
Senate Budget Questions CBO Director on Fiscal Policy
On Wednesday, the Senate Budget Committee convened for a hearing with Congressional Budget Office (CBO) director Phil Swagel to discuss recent adjustments to the CBO’s 10-year budget and economic outlook originally released in February. While this was the stated purpose of the hearing, much of the conversation centered around the broader fiscal condition of the U.S. and each party’s perception of the further damage the other would cause given success in November.
Committee Chair Sheldon Whitehouse (D-RI) began the hearing by discussing the role the 2008 recession and COVID-19 pandemic had in ballooning the national debt by more than $10 trillion, and the future risk that climate change poses in causing a similar effect. Closer to our focus, he noted that the Bush and Trump tax cuts added another $10 trillion, which is especially significant as Congress will consider extending expiring provisions of Trump’s Tax Cuts and Jobs Act (TCJA) next year. As Whitehouse mentioned, across-the-board extensions next year would add another $4.6 trillion to the national debt according to the CBO. When asked directly about the economic successes of the TCJA, Swagel asserted that the tax cuts did not “pay for themselves,” especially on the individual side.
Ranking Member Chuck Grassley (R-IA) and other Republicans attributed the growing national debt to Democratic-led spending, arguing that the Trump tax cuts significantly helped the economy despite conflicting evidence. Grassley also quipped that President Biden tried to “take the mantle of fiscal responsibility” during the debate two weeks ago and was unsuccessful.
As Chair Whitehouse noted during the hearing, the debt-to-GDP ratio would be declining if not for the Bush and Trump tax cuts. When added together with Republican insistence to claw back funding from the IRS that has proven to lead to a positive return in revenue (and even trying to use this as a “pay for” for international assistance), Ranking Member Grassley’s argument begins to wither. The case can be made that Democrats are the new party of fiscal responsibility but the jury is still out on whether voters will perceive and be receptive to it in November.