Inflation Falls and Buffett Says Everybody’s Gambling | Weekend Intelligence #21

June CPI surprised the whole market: inflation fell to 3.5% against the expected 3.8%, and the monthly drop was the biggest in six years. Within an hour the probability of a July rate hike shriveled from 42% to 17%. But in Congress Warsh instantly cooled the enthusiasm and refused to talk about victory. The same day Goldman Sachs posted the best quarter in its history, JPMorgan record revenues of $58 billion, and the five big banks together pushed trading income close to $39 billion. Let’s look at what really matters.

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Inflation is falling, but Warsh warns: “One number doesn’t mean victory”

Tuesday’s CPI report delivered the most positive inflation surprise of the whole of 2026. Consumer prices fell 0.4% quarter-on-quarter in June, the biggest monthly decline since April 2020 and the first negative monthly reading in six years. Year-on-year inflation dropped to 3.5% from May’s 4.2%, well below the 3.8% consensus. Core inflation excluding food and energy was completely unchanged on a monthly basis, and the year-on-year pace slowed to 2.6% from May’s 2.9%. Shelter, the stickiest component of core inflation, added just 0.1%, the least since January 2021. The energy index tumbled 5.7%, its steepest monthly fall since April 2020, with gasoline down 9.7% and heating oil down more than 9%.

Wednesday’s PPI report completed the picture. Producer prices slowed to 5.5% year-on-year in June from a revised 6% in May, while the 0.3% monthly decline followed a 0.6% rise in May. Goods prices fell 1.4%, the deepest drop in four years, and two‑thirds of the entire decline is down to gasoline with its minus 12%. Core PPI excluding food and energy slowed to 4.6% from 4.9%. The market reacted instantly: the probability of a July rate hike according to CME FedWatch fell from 42% to 17%. The S&P 500 added 0.38% on Tuesday, the Nasdaq 0.9%, and the chip index SMH jumped 2.5%.

But Warsh curbed the market’s joy. On Tuesday he opened his first Congressional testimony since taking office, and his words were deliberately cool. “It’s one number. I don’t overstate or cherry-pick data. Some will look at today’s numbers and say: mission accomplished, everything is great. That’s not my view,” he told lawmakers on the House Financial Services Committee. Warsh called the 63 months of above‑target inflation “an unfair tax imposed on American families and businesses” and promised the Fed will shed it. He refused, however, to offer any hint of what would prompt the central bank to raise rates. Senator Elizabeth Warren reproached him in a letter, writing that “by refusing to publish his own economic outlook he is depriving American families of information,” and called for greater transparency. At the same time Warsh unveiled the composition of five working groups that will revisit key aspects of monetary policy. Their members include former Walmart CEO Doug McMillon, Andreessen Horowitz co‑founder Marc Andreessen, and the head of Xbox at Microsoft Asha Sharma.