The greenback hasn’t been this weak in over two years, as mounting evidence of disinflation and cracks in the labor market stripped away its appeal, prompting a louder call from economists for the Federal Reserve to cut interest rates.

The U.S. dollar index—a trade-weighted gauge measuring dollar strength broadly tracked by the Invesco DB USD Index Bullish Fund ETF —dropped to 97.60 on Thursday, the lowest since late March 2022.

The slide came after a one-two punch of economic reports showed inflation cooling among consumers and producers while jobless claims surged to multi-year highs.

Inflation Broadly Undershoots Forecasts

Thursday's data from the Bureau of Labor Statistics revealed the Producer Price Index rose 2.6% in May from a year earlier, matching expectations but reflecting only a modest rise from April's revised 2.5%. On a monthly basis, PPI increased just 0.1%, below the 0.2% forecast.

Core PPI, which strips out food and energy prices, cooled to 3.0% year-over-year — its lowest reading since August 2024 — and posted a minimal 0.1% monthly gain, missing the 0.3% estimate. The figures indicate that inflationary pressures in the production pipeline remain soft, despite tariff concerns.

Released a day earlier, the Consumer Price Index for May rose 2.4% annually, a slight uptick from April's 2.3% but under the consensus view of 2.5%. Monthly CPI rose just 0.1%, also below expectations.

Core CPI held steady at 2.8% year-over-year, with monthly gains easing to 0.1%, down from 0.2% the previous month and falling short of the projected 0.3%.

These numbers reinforce the narrative that price pressures are failing to accelerate, despite lingering tariff-related risks.

Alongside subdued inflation, the labor market showed fresh signs of strain. Initial jobless claims rose to 248,000 in the week ending June 7, exceeding forecasts of 240,000. More significantly, continuing claims climbed to 1.956 million — the highest level since November 2021.

Economists Urge Fed To Cut Rates

Neil Dutta, economist at Renaissance Macro, said on Bloomberg TV, "The fact that continuing claims are basically running at cycle highs tells you that permanent layoffs are going up… The labor market is cracking."

Dutta indicated that the Fed is now behind the curve. "They should be focusing on the data that's coming in… The train may have already left the station."

The expert warned that "Fed policy is too tight" and urged the central bank to act. "Next week," he said, though he added he doesn't expect the Fed to move in June.

Referencing a prior misstep, Dutta added, "Powell said he was a little bit late when he cut in September. Then what does that make him now?"

“The Fed is whistling past the graveyard," he added.

Dutta also emphasized the connection between housing and inflation. "You look at metro areas like Dallas, Phoenix—these are places with significant home price weakness and very benign inflation," he said.

"If the housing market got worse after 100 basis points of cuts, Fed policy is too tight."

Bill Adams, chief economist at Comerica Bank, said the latest data “make a federal funds rate cut later this year more plausible,” although he warned that fiscal stimulus and slower labor supply growth may still keep unemployment stable, limiting the Fed’s incentive to ease.

Stephen Juneau, economist at Bank of America, was more cautious. "Overall, this would be a good number for the Fed, but it’s hard to take too much signal given the uncertainty tariffs pose around the inflation path."

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