Soft CPI Hands Bulls a $300M Liquidation Party, But Warsh Crashes It Sober 🪩

The U.S. Consumer Price Index fell 0.4% month over month in June, the steepest monthly decline since April 2020 and well below economist forecasts for a 0.1% drop, according to data released Tuesday by the U.S. Bureau of Labor Statistics. The annual rate cooled to 3.5% from May's 4.2%, versus expectations for 3.8%. Core CPI, which excludes food and energy, was flat on the month and rose 2.6% year over year, against forecasts for 2.8% and May's 2.9%. The print marked the last major inflation reading before the Federal Reserve's July 28–29 policy meeting.

The data sent crypto sharply higher within minutes. Bitcoin climbed from around $62,000 to $64,900, with $BTC trading near $63,400 later in the session, up about 2% over 24 hours. Ether surged 7% to $1,884, and roughly $300 million in short positions were liquidated as bearish bets were unwound. U.S. stock index futures also advanced, with the Nasdaq 100 up 1.25%, while bond yields fell sharply: the 2-year Treasury yield dropped seven basis points to 4.19% and the 10-year fell five basis points to 4.56%.

The softer numbers undercut the case for an imminent rate hike that had been building for weeks. July rate hike probabilities had climbed to as high as 42% on CME FedWatch as recently as Monday, up from 8% one month earlier, after Fed Governor Chris Waller on Monday said he would favor an immediate hike if core CPI failed to decline. On Polymarket, the odds of a July rate cut fell from 35% to 6% following the print, while the implied probability of at least one hike by year-end stood near 80%, down from 90% prior.

Roughly 90 minutes after the CPI release, Fed Chair Kevin Warsh began his first congressional testimony since succeeding Jerome Powell. He described business investment as the most striking feature of the current economy, predicting that what is now labeled "AI investment" will simply be called "investment." Warsh also stated that if the Fed gets policy right, the inflation surge of the past five years "will be a thing of the past" and reminded lawmakers the committee has "no tolerance for persistently elevated inflation." When asked directly about the June CPI data, Warsh pushed back on optimism, saying some might look at the print and declare "mission accomplished," then adding flatly, "that is not my view."