Inflation falls for the first time in six years, as Fed Chairman Warsh prepares to face Congress

A man fills up his vehicle at a gas station in Brooklyn on June 1 in New York City.

A 5.7% decline in energy prices in June was more than enough to drive down overall monthly figures in the Consumer Price Index.

Because energy is one of the major expenses consumers face, it’s given more weight in terms of how the overall index is calculated. That means that even small changes in energy prices can have a large effect on the direction of CPI.

So last month’s huge decline in energy prices stemming from the fragile ceasefire with Iran ended up accounting for over 100% of the 0.4% monthly fall in prices. Gasoline alone accounted for just under 100% of the monthly decline.

Tuesday’s encouraging inflation report for June likely means Federal Reserve officials can hold interest rates at their current level when they meet later this month to discuss monetary policy. But what’s far less certain is how they will respond if inflation springs back up, a likely outcome since gas prices are moving higher this month.

For now, the June report is “good news for the nation, for the Federal Reserve and for many middle-income and moderate-income Americans who were desperate for some relief on inflation,” said Heather Long, chief economist at Navy Federal Credit Union.

“The overall picture is encouraging. But it’s too uncertain right now to know how the renewed conflict in Iran will impact prices in July. The Fed may have to hike interest rates by December, but for now, the best course of action is to wait and see,” Long wrote in a Tuesday note.

Seema Shah, chief global strategist at Principal Asset Management, said: “Today’s data all but rules out a July rate hike.”

“Beyond that, the outlook is less certain. Resurgent energy prices, growing focus on the inflationary effects of the AI capex boom, and Warsh’s re-emphasized intolerance for elevated inflation suggest the risk of a rate hike this year is very much alive,” she wrote in Tuesday commentary.

Jeffrey Roach, chief economist at LPL Financial, said the big risk is still geopolitical, and that “a positive resolution with Iran before the end of the summer is becoming increasingly important.”

“After today’s benign core inflation release, it appears less likely that the FOMC will raise rates over the next few meetings. However, we may still be at an inflection point, given the risk that the energy shock could spill over into other categories of consumer prices,” he wrote in comments distributed Tuesday.

US consumer prices declined last month for the first time in six years, when rounding to the nearest tenth of a percentage point. The 0.4% fall in prices last month also marks the largest slide since April 2020.

Here’s how the path of inflation looks now:

Federal Reserve Chairman Kevin Warsh speaks during a news conference following the Federal Open Market Committee meeting on June 17 in Washington.

The central bank’s congressional mandate is to promote two key goals: maximum employment and stable prices. But at the most recent monetary policy meeting, Federal Reserve Chairman Kevin Warsh said he doesn’t believe in the “cruel choice” of deciding whether to focus on inflation or jobs.

Traditionally, economists have viewed the Fed’s dual mandate as a balancing act, with one goal sometimes coming at the expense of the other. If the Fed cuts rates to help spur employment, it risks igniting inflation. On the flip side, if the Fed keeps rates too high to fight inflation, it risks pushing more people out of work.

“I don’t believe that we have a cruel choice,” he said last month. “I don’t share the view that was expressed a few generations ago that the Federal Reserve chairman show up at the podium and say you’ve got to choose, and you’re going to have to decide whether you’re willing to tolerate higher inflation to put more people at work.”

Warsh’s message on inflation is uncomplicated: “The Fed will deliver price stability.”

“The commitment to deliver is strong, unanimous, and unambiguous. And that’s an important message we’ve missed for five years. And we’re going to fix that,” he said in his first press conference.

“What I believe is if we do our job, we can make strong growth, low prices and strong employment mutually compatible.”

The Goldman Sachs headquarters in New York is shown in January 2023.

It’s a day of blockbuster earnings on Wall Street.

Wall Street banks hauled in enormous profits in the second quarter, supported by traders capitalizing on a volatile market environment and a boom in dealmaking.

Five major US banks reported quarterly earnings Tuesday:

Shares were mixed in premarket trading: JPMorgan Chase fell 2%, while Citi, Wells Fargo and Bank of America fell about 1%. Meanwhile, Goldman Sachs gained almost 4%.

Asked on a call with reporters about exuberance in financial markets, JPMorgan Chase chief financial officer Jeremy Barnum said “it would be naive not be worried,” but stressed vigilance about risks.

“It’s always easy to be worried, and then the market keeps going up,” Barnum said. “We worry a lot all the time, but in the meantime, we have to support our clients, and that’s what we’re doing.”

For the past few months, Americans’ paychecks were essentially being wiped out by inflation. That’s because inflation was growing at a faster rate than wages, a result of slowing wage growth combined with ramped-up inflation stemming from the war with Iran.

But Tuesday’s Consumer Price Index report showed that on an annual basis, prices are rising at 3.5%, which is equal to the annual rate average hourly earnings are growing, per the June employment report.

Member of the Federal Reserve Board of Governors Christopher Waller at a Board Meeting at the Federal Reserve in Washington, DC, on October 24, 2025.

The Federal Reserve’s rate-setting committee is getting more comfortable thinking about raising interest rates for the first time since 2023.

Fed Governor Christopher Waller on Monday in a speech in New York said “sternly staring at inflation until it melts before our withering gaze is not an option.”

That’s a decidedly tough stance — and in stark contrast to his views from the beginning of the year, when he backed rate cuts and was in the running for the top job at the Fed.

Waller now joins other officials who have expressed similar concerns with inflation, such as Fed presidents Beth Hammack of Cleveland and Neel Kashkari of Minneapolis, who vote on policy moves this year.

Fed officials’ latest economic projections from last month showed that nearly all of them expect to either hike or hold rates steady this year, with only one policymaker estimating a rate cut. The chances of a rate hike this year still largely depend on what happens with the US-Israeli war with Iran, and whether inflation pressures broaden beyond the energy market and become long lasting.

People shop at the Macy's in Herald Square on June 3 in New York City.

When stripping out energy and food, two of the most volatile categories, far less progress was made last month on what economists refer to as “core inflation” compared to the headline reading.

Last month, core inflation fell to 2.6% from 2.9% in May’s reading. Federal Reserve officials closely monitor core inflation because it provides a better gauge of underlying price pressures stemming from factors outside of the war.

On a monthly basis, however, core inflation was unchanged from May, when it rose at a 0.2% rate.

Ahead of Tuesday’s report, Fed Governor Christopher Waller said if there were another “hot reading on core inflation this week,” he and his colleagues would need to consider raising interest rates.

A customer shops at a grocery store in Chicago on June 25.

The pace of price hikes slowed sharply last month, helped by a steep decline in gas prices as tensions eased in the Middle East.

Annual inflation measured 3.5% in June, compared to 4.2% in May, according to Consumer Price Index data released Tuesday by the Bureau of Labor Statistics.

However, that’s well above where it stood before the war with Iran broke out in February, when prices were rising at a 2.4% annual rate. Economists polled by FactSet had expected the pace of inflation to slow to 3.8% in June.

On a monthly basis, prices fell by 0.4%, after increasing by 0.5% in May. That marked the largest monthly decline in prices since April 2020.

US Federal Reserve Chairman Kevin Warsh holds a press conference at the Federal Reserve Board Building in Washington, DC, on June 17.

The Federal Reserve has begun a new chapter in its 113-year history — one that will usher in widespread changes, Federal Reserve Chairman Kevin Warsh said in prepared remarks Tuesday.

“Today we are at a hinge point in history,” Warsh said in prepared testimony for the House Financial Services Committee as part of his semiannual Monetary Policy Report to Congress. “We have a duty to point the institution forward — to take a fresh look at current practices to make sure we are serving our objectives.”

He added that the Fed must have “humility about what we know — and the courage to revisit our prior views.”

Warsh again stressed the importance of getting inflation under control, as he did during last month’s news conference, his first as head of the central bank.

He did not mention the role of geopolitical shocks in roiling inflation pressures, instead saying “monthly price fluctuations are inevitable — especially in an unsettled world.” Global oil prices were up sharply on Tuesday following the collapse of the US-Iran ceasefire.

The Fed leader described AI’s impact on business investment as “the most striking feature of the economy right now.”

“We don’t know the extent to which the economy will benefit from the AI buildout,” Warsh said. “Yet it seems inevitable that what is now called ‘AI investment’ will soon be called just ‘investment.’”

“Even so, new opportunities for the economy introduce new challenges for policymakers,” he added.