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Federal Reserve Chairman Kevin Warsh refused to take a victory lap on behalf of the central bank following a cooler-than-expected June consumer price index report, doubling down on a commitment to get the inflation rate back to the 2% target.
June CPI fell 0.4% in June – the first monthly drop since 2020 – slowing the year-over-year rate to 3.5% from 4.2% in May. The drop in the headline figure was largely down to the sharp drop in energy prices, particularly gasoline, following the signing of the Memorandum of Understanding between Iran and the U.S. Core CPI, which strips out food and energy costs, was unchanged in June and up 2.6% year over year. Economists surveyed by the Wall Street Journal had forecast CPI to fall 0.2% in June, coming in at 3.8% year over year. Core CPI had been expected to rise 0.2% in June and 2.9% year over year.
The cooler-than-expected readings drew a sharp reaction in financial markets. The 2-year Treasury yield – the most sensitive to Fed policy expectations – retreated after a pre-report surge. That decline helped pull down the U.S. dollar. Expectations for the Fed to hike rates this month fell, with fed funds futures traders pricing in a roughly 17% probability of a quarter-point increase, down from more than 40% on Monday.
For his part, Warsh told the House Financial Services Committee, in his first congressional testimony since being sworn in as Fed chairman last month, that he wouldn’t put too much emphasis on a single month’s numbers.
- “There might be some that look at this morning’s data and say, ‘Oh, mission accomplished, everything is swell.’ That is not my view,” he told lawmakers.
Eye on beef prices: The White House cheered the June CPI data, and USDA Secretary Brooke Rollins, in a post on X, hailed declines in prices of pork, poultry, vegetables, butter and seafood. Beef wasn’t on the list, with data showing a 1.2% rise in uncooked beef and veal in June, leaving the price up 11.8% year over year. It’s noteworthy because stubbornly high beef prices have been a source of consternation for Trump and has, according to news reports, sparked internal disagreements over further efforts to lower beef prices.
Walmart earlier this month said it was dropping prices on a number of summer items, including ground beef. Trump, in a Truth Social post, took credit for the move. The Wall Street Journal reported on July 7 that Rollins’s chief of staff had spoken with a number of grocers ahead of the July 4 holiday to inquire about beef pricing and that Walmart told the USDA it already had plans to reduce prices on many items, including beef, and implemented the plans on June 29.
Trump scraps Hormuz shipping fee: President Donald Trump on Tuesday announced he was scrapping the plan he had touted a day earlier to charge a 20% fee on commercial ships moving through the Strait of Hormuz. “Based on highly productive conversations with Middle East leadership, I have decided to replace the 20% United States Reimbursement Fee with Trade and Investment Deals that the various Gulf States will be making into the United States,” Trump said.
Oil futures had surged more than 9% following Trump’s announcement of the fee on Monday, but trimmed their rise after Tuesday’s remarks. WTI rose 1.5% to $79.34 a barrel and Brent crude gained 1.7% to $84.73.
CONAB raises Brazil soybean estimate: Brazilian government agency Conab pegged the nation’s soybean harvest at a record 180.6 million metric tons, up 5.3% from the previous harvest thanks to a larger area planted and favorable weather, according to Dow Jones Newswires. Corn production from the three crops in the current cycle was expected to reach 141.7 million tons, while wheat, which is in its final planting stage, was expected to see a production decline of 23.5% to 6 million tons.
Brazil raises mandatory ethanol blend: Brazil’s National Energy Policy Council on Tuesday approved a temporary increase in the mandatory ethanol blend in gasoline to 32% from 30%, Reuters reported, citing the Ministry of Mines and Energy. The increase will be in place for 180 days and could be extended for an equal period. Brazil last boosted its mandatory ethanol mix – to 30% from 27% – in August.
Ethanol and Brazil trade talks: A lowering of Brazilian tariffs on ethanol imports is off the table in U.S.-Brazil trade talks, Brazil trade minister Marcio Elias Rosa said, according to a report by Argus. The remarks came ahead of a July 15 deadline for a new set of U.S. Section 301 tariffs against the country. The report noted that Brazil charges an 18% rate on ethanol imports, regardless of origin. Ethanol market access is an issue that could warrant the return of a 25% tariff on imports from Brazil into the U.S., the U.S. Trade Representative’s office has said. That would bring the total U.S. rate on Brazilian ethanol to 37.5% versus the baseline tariff of 2.5% that was in place ahead of President Donald Trump’s tariff announcements in April of last year.
The report said US industry groups in last week’s hearing urged USTR to go beyond applying a 25% tariff, arguing the government should also remove barriers for crediting U.S. ethanol imports under the Renovabio program. Brazilian president Luiz Inacio Lula da Silva Rosa does not want ethanol on the agenda, nor does he want it to be discussed without sugar tariffs being addressed too, Rosa said, according to Argus.
East Africa food relief: USDA on Tuesday announced an agreement in principle with Catholic Relief Services to deliver up to $235 million in emergency food and nutrition assistance to millions of people facing extreme hunger and malnutrition in Sudan and Ethiopia. USDA said the effort, authorized under Title II of the Food for Peace Act, would mobilize more than 110,000 metric tons of U.S-grown agricultural commodities. USDA said the agreement leverages CRS’s operational footprints in East Africa, including the Sudan Emergency Project and the Joint Emergency Operation in Ethiopia.
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