After a blockbuster jobs report cast doubt over Federal Reserve rate cuts and pushed Treasury yields higher at the start of the month, investors finally caught a break last week.

Although wages are still rising rapidly, the latest inflation reports – the Consumer Price Index (CPI) and the Producer Price Index (PPI) – showed more disinflation than previously anticipated. The 10-year Treasury yield plunged 11 basis points, and mortgage rates fell even more on the news.

The headline CPI in May was unchanged from the prior month. The annual increase in the CPI is now 3.3%, easing from 3.4% in April. Core CPI advanced 0.16% on the month, down from 0.29% in April. Annual core inflation eased to 3.4% from 3.6% in April. The PPI, which measures changes in the selling prices received by domestic producers, fell in May.

The latest numbers suggest the Federal Reserve’s preferred inflation gauge – the Personal Consumption Expenditures (PCE) Price Index – is likely to continue inching closer to the Fed’s two-percent inflation target. This move would represent a faster descent than the Federal Open Market Committee’s (FOMC) own projections. After an uptick in the first quarter, inflation is now moderating faster than expected.

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