Two consecutive disinflationary readings have reduced market-priced odds of a Federal Reserve rate hike at the July 29 policy meeting to remote. Chairman Kevin Warsh, testifying before the Senate Banking Committee for a second straight day Wednesday, welcomed the data while making clear it settles nothing about the policy path for the rest of the year.
What the June numbers delivered
The Labor Department's June Producer Price Index fell 0.3% overall, according to figures released Wednesday morning. The core measure, stripping out food, energy and trade services, rose just 0.1%. That came one day after a similarly disinflationary Consumer Price Index report, and together the two prints have made any rate move at the July 29 meeting a remote prospect in market pricing.
Warsh's words at the Capitol
Warsh said Wednesday that "any central bank would be happy to have the data going in the right direction," but his qualifying view is that "these are all imperfect measures of the state of underlying inflation." He also noted a Fed task force is examining how economic data agencies might improve their methods in an evolving economy.
The more consequential signal came late in Tuesday's three-hour House hearing. Tired and likely further from prepared remarks, Warsh told lawmakers: "Over the coming period, I'm going to ask our colleagues to have a good family fight about the extent and timing in which we would need to deploy those [policy tools] to deliver on the promise" of price stability. That is the phrasing of a central banker who has not made up his mind, not one preparing to act.
The counterargument
The case for reading more into the disinflation data is real. Back-to-back soft prints on consumer and producer prices are precisely the sequential evidence the Fed says it needs before adjusting policy. If July 29 passes without action, the window for any 2025 move narrows considerably, and the market's repricing of hike odds reflects that arithmetic.
On balance
The data removes the immediate pressure for a hike. What remains uncertain, by Warsh's own account, is the policy stance for the months ahead. The line to watch is whether the Fed's internal "family fight," as Warsh termed it, reaches any conclusion before the next scheduled meeting or pushes the decision further into the calendar.