ABE Weekly: Soft US Core CPI Print Reinforces the Case for Fed Patience

Market Insights

• Australian Business Insolvencies Stabilise as Failure Rate Remains Historically Low
• Soft US Core CPI Print Reinforces the Case for Fed Patience
• High US Mortgage Rates Keep Housing in a Holding Pattern
• Middle East Tensions Challenge the Improving Inflation Outlook

Key Points

• Australia: The RBA left the cash rate unchanged at 4.35% p.a. at its June meeting. May CPI eased to 4.0% p.a., while Trimmed Mean rose to 3.60% p.a., up from 3.4% p.a. in April.
• United States: The Federal Reserve left the federal funds rate unchanged at 3.50%–3.75% p.a. at its June 2026 meeting. The latest U.S. CPI inflation rate was 3.5% p.a. in June 2026. Core CPI moderated further to 2.6% p.a.
• United Kingdom: The Bank of England held the Bank Rate steady at 3.75% p.a. CPI for May was 2.8% p.a., with Core CPI slowing to 2.6% p.a.
• Eurozone: The European Central Bank increased its key deposit facility rate by 0.25% to 2.25% p.a. Recent data show inflation in the euro area increased to 3.2% p.a. in May, up from 3.0% in April.

Here are the latest monetary-policy and inflation figures for key economies:

Australian Business Insolvencies Stabilise as Failure Rate Remains Historically Low

Australian business insolvencies remain elevated in absolute terms but have stabilised in recent months as business failures continue to normalise following the pandemic. However, the insolvency rate, measured relative to the number of registered businesses, has continued to decline and remains low by historical standards, well below the peaks of the early 2010s.

Why it matters: While higher real interest rates continue to pressure some borrowers, the low aggregate insolvency rate suggests corporate credit stress remains contained. This points to a resilient business sector, with risks appearing issuer-specific rather than economy-wide.

Soft US Core CPI Print Reinforces the Case for Fed Patience

US core CPI unexpectedly edged lower in June (-0.02% m/m), the weakest monthly outcome since May 2020 and well below market expectations (+0.2% m/m). The softer-than-expected inflation print reinforced evidence that underlying price pressures continue to moderate. Core CPI, annualised over the past three months, eased to 2.9% from 3.0%, while the year-on-year increase, based on the three-month average, remained stable at 2.5%. While the June result was encouraging, broader inflation measures remain above the Federal Reserve’s 2% target. Although the benign CPI print reduced the near-term urgency for further policy tightening and increased expectations that the Fed will leave rates unchanged at its July meeting, Fed Chair Kevin Warsh has reiterated the Committee’s commitment to restoring inflation sustainably to its 2% objective. He has also signalled a preference for a smaller Federal Reserve balance sheet over time, with any changes to balance sheet policy expected to be gradual and well communicated to markets.

Why it matters: The Fed’s balance sheet expansion provided significant liquidity support to markets and helped underpin asset valuations. A gradual reduction represents a further normalisation of monetary policy by tightening financial conditions through liquidity withdrawal rather than higher policy rates.

High US Mortgage Rates Keep Housing in a Holding Pattern

The US housing market continues to show little sign of a sustained recovery. Existing home sales declined 2.4% in June, partially reversing May’s 3.7% increase, with the three-month average holding at just 4.1 million (SAAR). While this remains broadly in line with the average over the past two years, it is low by historical standards, highlighting subdued housing turnover. Broader housing market indicators also remain soft, with some measures continuing to weaken as elevated mortgage rates weigh on affordability and demand. Mortgage rates remain elevated because they are more closely tied to long-term Treasury yields than to the Federal Reserve’s policy rate. As long-end yields have remained high, borrowing costs for homebuyers have stayed restrictive, continuing to weigh on affordability and suppress housing market activity. Unlike Australia, where structural housing undersupply is the dominant issue, the US housing market is currently constrained primarily by high mortgage rates and the mortgage lock-in effect. Although the US still faces an underlying housing shortage in many regions, elevated long-term Treasury yields have become the key cyclical constraint on housing turnover and affordability.

Why this matters: US mortgage rates are determined primarily by long-term Treasury yields, making the long end of the yield curve critical for the housing market. Lower long-end yields would ease mortgage rates, improve affordability and support a recovery in housing activity, even without significant changes in the Fed’s policy rate.

Middle East Tensions Challenge the Improving Inflation Outlook

The US-Iran ceasefire has come under renewed pressure, with escalating regional strikes and renewed concerns over disruptions to the Strait of Hormuz. The uncertainty has pushed Brent crude back towards USD 80/bbl, reversing some of the recent relief in energy prices. For fixed-income investors, the key question is whether these shocks remain temporary or begin to feed into broader inflation dynamics. Encouragingly, recent US inflation data suggest that earlier energy price pressures have not yet translated into a broader inflation impulse. While uncertainty remains elevated, fixed income provides greater stability through regular income and downside protection compared with equities and other growth assets.

Economic calendar

World Economic Calendar

Scheduled economic releases and policy events for 23 Jul 2026.

Highlighted rows indicate key AU/US releases and major market-moving events.

Date / Time	Country	Event	Period	Prior
Thu, 23 Jul11:30 AM	AU	Employment ChangePeriod: Jun	Jun	40.3k
Thu, 23 Jul11:30 AM	AU	Unemployment RatePeriod: Jun	Jun	4.40%
Thu, 23 Jul11:30 AM	AU	Full Time Employment ChangePeriod: Jun	Jun	5.2k
Thu, 23 Jul11:30 AM	AU	Part Time Employment ChangePeriod: Jun	Jun	35.2k
Thu, 23 Jul11:30 AM	AU	Participation RatePeriod: Jun	Jun	66.70%
Thu, 23 Jul10:30 PM	US	Initial Jobless ClaimsPeriod: 18-Jul	18-Jul	—

Source: Economic Calendar Data.

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