Investors are keenly awaiting the Consumer Price Index (CPI) report set for release on Thursday. This economic indicator will provide fresh insights into the Federal Reserve's ongoing battle against inflation and offer valuable clues about their next move for monetary policy, with investors hoping for a potential rate cut.
Yahoo Finance anchor Josh Lipton examines market expectations of the upcoming CPI print.
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This article was written by Angel Smith
Fed Chair Jerome Powell spoke at the European Central Bank forum last week in Portugal, where he said the US economy is getting back on a disinflationary path. So for more on what the latest economic data could mean for you and your wallet, we bring in our very own Josh Lipton. Hey, Josh.
Brad, we had that big jobs report last week. This week, more important economic data is on deck. This time, as you were mentioning there, the focus is on inflation with the release of the June Consumer Price Index coming on Thursday. Economists expect headline inflation rose 3.1% annually in June. That would be a slowdown from the 3.3% rise seen in May. Prices are set to rise 0.1% on a month-over-month basis. On a core basis, so excluding volatile food and energy items, CPI is forecast to rise 3.4% over last year in June, unchanged from May. Monthly core price increases are predicted to clock in at 0.2%. The Federal Reserve will, of course, carefully examine this CPI print as another important data point determining if and when they can start cutting rates, which affects borrowing costs for consumers and companies across the economy. Remember, there was that string of hotter than expected inflation data to start the year, which surprised our policymakers in Washington. The picture does seem like it has been improving, but central bankers still seem to be feeling cautious. We saw that in the minutes of the Fed's June policy meeting released last week, which investors look to for clues behind the policymakers thinking. Our central bankers said the progress toward their 2% inflation target had been modest, and that they still want more data to give them greater confidence that inflation is indeed returning sustainably toward 2%, adding that some participants emphasized the need for patience. Still, investors bet that inflation is headed in the right direction. That trend, coupled with a cooling labor market, will give our Fed the cover they need to start cutting rates soon, perhaps in the fall. Markets currently assign a roughly 75% probability of a rate cut in September. Brad, back to you.
Yeah, it's been really interesting to track, especially with regard to how the Fed's thinking could move at coming meetings. And I'm taking a look just at the CME FedWatch probability. A week ago this time, we were looking about 60%, 60 to 65% of a rate cut coming in the September meeting. You look at that now, you fast forward a week, at this point, now we're looking at about a 77% chance. So a significant jump even week over week. Some of the ISM data had really swung things in the common consensus thinking last week. We'll see what this inflationary data sets up this week as well.
Yeah, and as you're pointing out, Brad, also, our central bankers are back on Capitol Hill. You know, J. Powell in front of lawmakers, we'll see what he says there, too. Does he give any more indication? There are some economists who think, you know, maybe at least in July, does he start laying the groundwork for that cut in September? So we'll see what kind of color commentary we get.
Josh, appreciate it.
