US inflation cools to 3.4% as core eases to 2.5%

US consumer prices rose 0.1% in July, cooling annual inflation to 3.4% from 3.5% and matching forecasts, while core inflation eased to 2.5%.

Market pricing for a September rate hike fell to 44 percent from 48 percent before the release, according to the CME FedWatch Tool, as traders trimmed bets on tightening.

Bitcoin held near $64,000, dipping from $64,400 to $64,080 in a knee-jerk reaction before stabilizing. Treasury yields declined, with the two-year at 4.19 percent, down 3.6 basis points, and the 10-year at 4.66 percent, down 3 basis points. Nasdaq 100 futures rose 0.7 percent.

The in-line print reduces the risk of an outsized hawkish surprise. With core inflation at 2.5 percent versus the Fed's 2 percent target and shelter costs still elevated, the September meeting remains live. The next CPI report arrives September 11.

Shelter costs accounted for roughly two-thirds of the monthly increase, rising 0.1 percent. Housing makes up about a third of the overall index, and its slow-moving nature — driven by lease renewals and rent resets that take months to filter through — keeps it the stubborn holdout in the disinflation story. Food prices rose 0.1 percent, driven by a 0.3 percent gain in food away from home, while energy fell 1.5 percent as gasoline dropped 2.9 percent.

Within core categories, medical care rose 0.4 percent, airline fares climbed 2.2 percent, and motor vehicle insurance declined 0.3 percent. Food at home fell 0.1 percent, with the meats, poultry, fish, and eggs index down 0.7 percent and lettuce down 16.4 percent.

Over the past year, energy costs rose 14.7 percent, driven by a 24.6 percent surge in gasoline, while the food index increased 3.0 percent. Airline fares climbed 25.5 percent year over year.

The July report follows a weaker-than-expected employment print that showed the economy shed 23,000 jobs, far short of forecasts for a gain of 80,000. That combination has left the Fed's September path uncertain, with odds of a hike having fallen from 54 percent a week ago.

Inflation peaked at 4.2 percent in May 2026 before easing, after touching a low of 2.4 percent in January. The current 3.4 percent reading sits just above the long-term average of about 3.3 percent, leaving the gap to the Fed's 2 percent target narrow but persistent.

The two consecutive months of deceleration — June's 0.4 percent monthly decline followed by July's 0.1 percent gain — suggest the spring surge has cooled. For the Fed, the question is whether shelter costs, which have resisted the broader easing, will finally bend as lease renewals reset lower. A core reading at 2.5 percent, if sustained, would bring the central bank within striking distance of its target without the need for aggressive tightening.

For crypto, the energy price decline is worth watching from a mining perspective. A sustained drop in electricity costs slightly improves the economics of proof-of-work mining operations, even as bitcoin's range-bound trade near $64,000 reflects broader caution ahead of the Fed's decision.

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