With inflation on the mend, what will the Fed do next?

At long last, could this be the beginning of the end for rising prices? Inflation climbed just 3% in June from a year earlier and is now at its lowest point since March 2021, driven by cooling used car prices, airline fares and gas costs, the U.S. Labor Department announced in data released Wednesday. The core consumer price index, meanwhile, which excludes volatile food and energy costs, rose 4.8% on an annual basis, below economists' expectations (though still "relatively high" compared to a year ago), and 0.2% on a monthly basis. "After a punishing stretch of high inflation that eroded consumer's purchasing power, the fever is breaking," said Bill Adams, chief economist at Comerica Bank, per The Wall Street Journal.

To be clear, Wednesday's numbers are still hotter than the Federal Reserve's 2% target, and will likely prompt renewed action from the central bank at its July 25-26 meeting. Still, the data nonetheless "offered some of the most hopeful news" since the regulators "began trying to tame rapid price increases 16 months ago," said The New York Times. With that in mind, will (and should) Chair Jerome Powell and co. proceed with another hike, as expected? Or does such good news solicit yet another reprieve?

Hold the phone

We couldn't have asked for a better inflation report, said Mark Zandi, chief economist at Moody's Analytics. "Inflation is definitively throttling back, and while today's report overstates the case, there is a strong case that inflation is headed in the right direction," he tweeted. The central bank should consequently "rethink the need" for further hikes. The fact that monetary policy "works on its own lag" should also give the Fed pause ahead of its next meeting," CNN summarized, per finance and economics professor Sung Won Sohn. "They've done enough," Sohn told the outlet. "They're making good progress, so let's wait and see. We don't need any more hikes now." Indeed, the June data "is very good news on the inflation front" and supports the idea that the Fed "could forgo raising interest rates later this month without endangering its progress in lowering inflation," tweeted Chad Stone, chief economist at Centeron Budget.

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And while many economists might be expecting one, "I don't think a hike in July is absolutely guaranteed," SoFi's Liz Young told CNBC's "Market Alert." "I think there is a decent probability [the Fed] might be done or that they might prolong the pause even further because there has been good progress. And it's okay to be positive about that progress."

Hike 'em up

"A decent share" of this disinflation looks "transitory," or temporary, tweeted journalist Matthew Yglesias, so even though Wednesday's report is "very good," it's best for the Fed to "stay the course with another hike." After that, the bank can switch to "true 'wait and see' mode." Indeed, core PCE inflation, the Fed's "favorite inflation gauge" and the one against which it sets its target inflation threshold, is still running hot, meaning the bank "should still do more," added Jason Furman, a former chair of the Council of Economic Advisers during the Obama administration.

In "reality," Bill Dudley, former president of the New York Federal Reserve, told Bloomberg, the economy is "doing quite well" and hasn't yet "slowed down enough" in the Fed's eyes. By September, however, when regulators are scheduled to get together after the July meeting, it's likely they do wind up taking a break from increases. "I can imagine by that point that it's possible they'll see enough news that makes them confident that they've done enough." It also seems the "vast majority" of members believe the risk of "stopping the hikes too early" is greater than the risk of "going one too many," former Fed Vice Chair Roger Ferguson told CNBC's "Squawk Box." That's why "we should not, in any sense, think that they are done," though "September is a real possibility."

At this point, the "Fed has painted itself into a corner" regarding another rate hike, said Ryan Sweet, chief U.S. economist at Oxford Economics. However, as both Ferguson and Dudley predicted, "the new data could give the Fed reason to debate whether any further rate hikes after this month are needed."