Rate-Cut Winner Index rises 1% as CPI miss fuels Fed easing bets

The Rate-Cut Winner Index rose 1.04% to 95.79 points after June CPI printed below consensus, before paring gains during Fed Chair Kevin Warsh's congressional testimony.

"We're not yet convinced inflation is sustainably headed toward 2%," Warsh told lawmakers, reiterating the cautious posture he outlined in June. The Fed chair noted that some officials had contemplated rate hikes later in 2026, according to his prepared remarks.

The Bureau of Labor Statistics reported headline CPI rose 4% year-over-year in June, below the 3.8% consensus estimate. Core CPI came in at 3%, also missing forecasts. The monthly headline figure fell 0.4%, the biggest drop since 2020. CME FedWatch data showed traders increasing bets on easing after the release, though no-change scenarios still dominated expectations for the July 28-29 meeting.

The conflicting signals leave rate-sensitive equities in a tug-of-war heading into the July 28-29 FOMC meeting. If July and August data continue to soften, the case for a September rate cut becomes harder for even the most hawkish officials to dismiss.

The index, which tracks stocks positioned to benefit from lower borrowing costs — including rate-sensitive sectors such as real estate, utilities, and small-cap growth names — opened higher on the data before reversing course as Warsh spoke. Bitcoin rose to near $62,600 after the release, while gold held above $4,000 an ounce. The Malaysian ringgit weakened to 4.0760 against the dollar, reflecting cautious positioning ahead of the Fed's next decision. Across asset classes, the initial reaction to the CPI data was uniformly risk-positive before Warsh's testimony reintroduced uncertainty.

The 4% headline reading, while down from 4.2% in May, remains double the Fed's 2% target. The monthly decline of 0.4% was the steepest since April 2020, driven largely by falling gasoline prices. However, core services inflation — the component the Fed watches most closely — remained sticky, giving Warsh ammunition to maintain a hawkish posture. Geopolitical tensions involving Iran and potential disruptions to shipping through the Strait of Hormuz add upside risk to energy prices, which could reverse the disinflationary trend. These crosscurrents explain why the market's initial euphoria gave way to caution within hours.

The July 28-29 FOMC meeting now becomes the next major test for rate-sensitive assets. With the Fed holding its target rate between 3.50% and 3.75%, any shift in forward guidance could trigger significant repositioning across equities, bonds, and currencies. For now, the index's session trajectory — up on the data, down on the testimony — captures the market's central tension: inflation is cooling, but the Fed is not ready to act.

This article is for informational purposes only and does not constitute investment advice.