WASHINGTON (AP) – U.S. inflation cooled last month as the cost of gas, clothes, and used cars fell, providing some relief to consumers, though much of the progress could be reversed if the Iran war worsens.
Prices dropped 0.4% in June from May, the largest monthly drop in four years, the Labor Department said Tuesday. On a yearly basis, inflation declined to 3.5%, down from a year-over-year gain of 4.2% in May and lower than many economists expected.
Yet oil prices jumped Monday as the United States renewed attacks on Iran and President Donald Trump announced a new blockade in the Strait of Hormuz, a key shipping route for about one-fifth of the world’s oil. And many Americans have soured on the economy after five years of elevated inflation, posing a risk to Trump and Republicans in the upcoming midterm elections.
Excluding the food and energy categories, core prices were unchanged in June, a positive sign that underlying inflation is cooling. On a yearly basis, core prices rose 2.6%, down from 2.9% the previous month. Core inflation remains above the Fed’s target of 2%.
The inflation-fighters at the Fed remain sharply divided over next steps, according to minutes of their June 16-17 meeting. About half of policymakers support raising interest rates by the end of the year to cool borrowing, spending, and price increases, the minutes showed. Another half are willing to wait for signs that inflation may resume falling as gas prices decline, though the minutes predate the recent flare-up of violence in the Middle East.
PHOTO- Gas pumps are seen at a gas station in Buffalo Grove, Thursday, June 25, 2026. (AP Photo/Nam Y. Huh)
THAT IS A BREAKING NEWS UPDATE.
WASHINGTON (AP) – Federal Reserve Chair Kevin Warsh pledged to make high inflation “a thing of the past” in his first congressional testimony Tuesday, yet provided no signal about the central bank’s next steps.
Yet about half of the 19 members of the Fed’s interest rate-setting committee expect they will have to raise the central bank’s key rate by the end of the year to defeat inflation, while nearly half have penciled in no change or even a rate cut.
Warsh faces a stiff challenge in reconciling the divided committee while navigating a rapidly-changing economic outlook.
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