US Inflation Slows to 3.5% Annually in June Amid Mixed Economic Signals

US inflation unexpectedly slowed to an annual rate of 3.5% in June, below the 3.8% forecast and down from May's 4.2%. The rise in inflation in May was driven by a surge in oil prices linked to the conflict in Iran, pushing inflation above 4% for the first time in three years. The Consumer Price Index (CPI) increased by 0.5% in May on a monthly basis, with the annual inflation rate reaching 4.2%, the highest since April 2023 when it stood at 4.9%.

In early July, June employment data revealed a sharp slowdown in job growth, with only 57,000 new jobs added compared to economists' expectations of 110,000. May's job growth figures were also revised downward from 172,000 to 129,000. Despite the slowdown, the unemployment rate improved slightly, dropping by 0.1 percentage points to 4.2%.

The Federal Reserve, under new Chair Jerome Powell, held interest rates steady at 3.75% during its first meeting with Powell at the helm, in line with market expectations. The Federal Open Market Committee (FOMC) voted unanimously to maintain the current rate, which has been unchanged since the last decision in 2025. However, Fed officials raised their inflation forecasts, lowered growth and unemployment projections, and removed previous expectations for a rate cut this year, leaving open the possibility of future rate hikes.