An Aldi supermarket in Alhambra, California, USA, Thursday, June 27, 2024.
Eric Thayer | Bloomberg | Getty Images
Thursday’s widely anticipated inflation report is likely to solidify expectations that the Federal Reserve will cut interest rates in the coming months.
The June Consumer Price Index (CPI) report will be released at 8:30 a.m. ET. Recent economic data has shown that both inflation and economic growth are cooling, including last week’s report that the unemployment rate rose to 4.1% in June.
Thursday’s report follows two days of testimony from Federal Reserve Chairman Jerome Powell on Capitol Hill this week. The central bank governor gave no indication of when he would begin cutting interest rates. However, Powell did say that the Fed believes that the risks facing the economy are more about the balance between inflation and recession, and that the central bank does not need to wait until inflation reaches 2% before cutting interest rates.
What to pay attention to
Economists surveyed by Dow Jones expect CPI to rise 0.1% quarterly and 3.1% annually. Excluding volatile food and energy prices, core consumer prices are expected to rise 0.2% from May, rising 3.4% since last June.
The CPI in May was It was flat month-on-month and increased by 3.3% year-on-year.
Matt Brenner, executive vice president of investments and product management at MissionSquare Retirement, said focusing on unemployment and inflation trends could strengthen the case for a rate cut.
“Relative to the Federal Reserve’s target (2%), inflation levels are still at a high level. The unemployment rate is still at a historically low level, at 4.1%. But the trend in both is that the unemployment rate gradually begins to rise and inflation continues Up. “Down trajectory,” Brenner said.
“For some time the Fed has been more focused on levels, and now it looks like they may be starting to focus more on trends. If that’s the case, then the likelihood of a rate cut goes up,” Brenner added.
Price changes that make up the CPI index will also be in focus Thursday, especially if the numbers differ from expectations. Tony Ross, chief investment officer at Wilmington Trust, said housing and health care services could be key areas to watch.
Housing and medical services are also key components of the Personal Consumption Expenditures Index, the Fed’s preferred inflation gauge rather than the Consumer Price Index.
“We’re seeing pretty modest gains in health services, which is important because health services make up a much larger share of personal consumption expenditures, which is the more important of the two inflation reports,” Ross said.
market impact
The CPI report comes at a time when the market is on an upswing.
Stocks and bonds both rose in July as traders became more confident about a rate cut sometime this year. S&P 500 Index It topped 5,600 for the first time on Wednesday.
Stocks rose in July, with the S&P 500 hitting another record high on Wednesday.
Fed funds futures pricing shows traders expect the Fed to hold rates steady at its meeting later this month before cutting them in September. CME Group Fed Watch Tool. A month ago, according to the same tool, which uses 30-day fed funds futures to derive implied odds, the likelihood of another pause in September was almost elusive.
Meghan Swiber, rates strategist at Bank of America, said in a note to clients on Wednesday that the unchanged forecast for July could prevent Thursday’s consumer price index (CPI) report from having a significant impact on the market.
“Constraints on cooling activity and recent price cuts should limit market reaction in either direction,” Swiber said.
However, Wilmington Trust’s Ross said stocks could rise if the inflation data comes in weaker than expected, as some investors have yet to shake off concerns about a brief rise in inflation earlier this year.
“I don’t think the market has fully appreciated the weakness in the economy or the fact that inflation is clearly a thing of the past,” Ross said.
—CNBC’s Michael Bloom contributed reporting.
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