Takeaway
Rates are expected to fall today after an unexpectedly soft CPI inflation report reduced the likelihood that the Fed will raise rates at its July 29 meeting.
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Inflation Comes In Much Lower Than Forecasters Expected
Headline inflation declined 0.4% month over month in June, bringing the annual rate to 3.5%, largely due to falling energy prices. Excluding food and energy, core inflation was unchanged at 0.0% month over month and came in at 2.6% annually.
Forecasters had expected headline inflation to decline by 0.19% for the month and core inflation to increase by 0.21%. This represents an unusually large forecasting miss.
The last time forecasters were off by a similar margin in recent memory was in fall 2025, when the Bureau of Labor Statistics unexpectedly assumed zero shelter inflation during the government shutdown, artificially lowering both headline and core inflation. At first glance, however, there does not appear to be anything unusual or suspicious in today’s data.
Apart from the expected decline in energy prices, no single category played an outsized role in the unexpectedly soft reading. Instead, weaker price growth was broadly distributed across the report.
Shelter costs, the largest component of the CPI, increased by just 0.1% for the month, compared with their more typical pace of around 0.3%. Services prices were flat at 0.0% after averaging monthly increases of approximately 0.3% over the past several months.
Goods prices were also generally subdued, declining 0.1% overall, while apparel prices fell 0.6% for the month.
The Personal Consumption Expenditures, or PCE, inflation report scheduled for release later this month could still come in higher. The Fed generally prefers the PCE index over the CPI when assessing inflation. Tomorrow’s Producer Price Index report should provide the remaining data forecasters need to estimate the PCE reading with greater precision.
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The Fed Is Now More Likely to Hold Rates Steady
Following today’s inflation report, the Fed is likely to keep rates unchanged at its meeting in two weeks. Markets had been concerned about a possible rate hike, so today’s news should provide some relief for interest rates.
Recent comments from Fed officials and the minutes from last week’s FOMC meeting had raised concerns that a hike could come as soon as the July 29 meeting. As of yesterday, futures markets were pricing in odds of nearly 50%.
After today’s inflation data, however, a July rate hike appears much less likely. Based on recent Fed commentary, policymakers are more likely to delay any rate increases while continuing to monitor inflation and labor-market conditions.
Fed Chair Kevin Warsh is scheduled to testify before the House Committee on Financial Services today at 10:00 a.m. ET. His first Fed meeting in June made it clear that he is unlikely to say much, if anything, about the future path of monetary policy or how the committee will make its decisions. Even so, markets will closely scrutinize his remarks.
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* Loaning.ai, Rocket Mortgage, Chase, SoFi, and Wells Fargo: Home price $1,000,000.00 / Loan amount $700,000.00
* Updated July 13, 2026 — U.S. Pacific Time
Legal Disclosures
The rates shown here are calculated under the following conditions: 30-Year Fixed, Level Payment, U.S. Citizen, tax returns for 2 years or more, Full Documentation, Single-Family Home, Purchase, Primary Residence, Credit Score (FICO) 740, DTI 45%, and LTV 70%. Your actual rate, payment, and costs may differ based on your complete financial profile. This is NOT a mortgage loan approval or a commitment to lend.
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