Nominal CPI YoY: Previous 4.2% → Expected 3.8% → Actual 3.5% (a sharp drop of 0.7% below expectations) Nominal CPI MoM: Previous +0.5% → Expected -0.1% → Actual -0.4% (below expectations) Core CPI YoY: Previous 2.9% → Expected 2.8% → Actual 2.6% (below expectations, falling below a key level) Core CPI MoM: Previous +0.2% → Expected +0.2% → Actual 0.0% (below expectations) Newly appointed Federal Reserve Chairman Warsh is facing a "happy problem." Although he remained tough in his congressional testimony (zero tolerance for inflation, not ruling out a rate hike in July), the frigid June CPI data has already "physically stripped" the Fed of the legitimacy for a July rate hike. This decline in inflation data may be a "real fall," its damage lying in the "absolute freeze in month-on-month growth " and the "resonant decline in core items."

A 7% plunge in energy prices is a major blow, but the key is for core assets to go to zero.

The nominal CPI plummeted to -0.4% month-on-month, primarily driven by a roughly 7% drop in the energy CPI. While energy commodities like crude oil only account for about 3.5% of the total CPI, a 7% decline was enough to weigh on the overall CPI by approximately 0.25 percentage points. Even more exciting for the market was the core CPI, which remained at 0.0% month-on-month, meaning that excluding oil prices, core goods and services in the US were generally "not increasing in price." The US dollar index plunged. (US Dollar Index Daily Chart, Source: FX678)

The -0.1% figure for the housing CPI sends an important signal.

In his testimony, Walsh stated, "The housing sector remains lagging." This is a stark truth, as rents, which account for over one-third of the CPI, have refused to decrease due to statistical lag. While the 0.1% drop in housing CPI is small, any easing of this behemoth, which accounts for over 40% of core CPI, signifies the opening of a downward trend in core inflation, making it a highly significant indicator.

Hidden Clues in Walsh's Congressional Testimony: AI Construction and Monetary Defense

Newly appointed Federal Reserve Chairman Warsh, who took office in May, made statements with a strong sense of "new broom sweeps clean." Warsh emphasized that "the Fed will not tolerate persistently high inflation" and that "underlying inflation is determined by monetary policy." For the past few years, inflation has consistently hovered between 3% and 4% (far exceeding the Fed's 2% target), compounded by political pressure from Trump and calls for a July rate hike from Governor Waller. As the new chairman, Warsh's primary task is to establish the Fed's independence and its iron-fisted stance against inflation; he cannot afford to back down. In his testimony, Warsh extensively discussed business investment, particularly noting that "total equipment investment grew by about 8% in the first quarter, and high-tech spending grew at an annualized rate of nearly 25%." He also noted strong productivity growth and supply-side advantages. If business investment and AI development can significantly boost the "productivity" of the US economy, it means the US can accommodate higher economic growth and wage increases without triggering inflation. This provides theoretical support for a future "soft landing" or even no interest rate cuts.

Gold surges $50 intraday

Before the CPI was released, the market had already priced in a possible rate hike in July due to hawkish statements from officials like Waller (the probability was once over 40%). This created a huge "spring." When the CPI was released, the data not only did not exceed expectations, but actually "fallen below expectations across the board": the expectation of a July rate hike instantly vanished: the rationale for a July rate hike was completely shattered, and policy expectations faced recalibration. Real US Treasury yields plummeted: with the cooling of rate hike expectations, both US Treasury yields and the dollar index fell sharply. Gold bulls launched a frenzied counterattack: as a non-interest-bearing asset, gold's biggest enemies are "high interest rates" and "Fed rate hikes." When the threat of a rate hike was removed and the dollar collapsed, the pent-up sentiment of gold bulls exploded instantly, directly pushing gold prices up by more than $50. (Spot gold daily chart, source: FX678)

Summary and Outlook: Ultimate Speculation on the July Meeting

The probability of keeping interest rates unchanged jumped from 60% to 84%. (FED Watch interest rate futures, source: CME Group) Although Warsh may maintain his "stubborn" stance in his upcoming semi-annual monetary policy testimony (e.g., claiming that one month's low data does not represent a trend and the Fed needs to continue observing), the market is well aware that the alarm bells for a July rate hike have been completely lifted. If the subsequent retail and non-farm payroll data are "moderately stable," the market will continue to observe. If the subsequent non-farm payroll data shows a "significant slowdown," coupled with the CPI falling below expectations, the market will immediately shift from "rate cut euphoria" to "recession panic." This would mean that gold, due to its safe-haven appeal and the combined effect of rate cut expectations, would experience a significant rebound.