Notes From the Desk – US Inflation – Is It Slow Enough?
The last data point before tomorrow’s Federal Reserve (Fed) dropped this morning.
The numbers.
- YoY headline CPI 4% (Consensus estimate 4.1%)
- YoY core CPI 5.3% (Consensus estimate 5.2%)
Tomorrow.
With more mixed signals, today’s data did not offer clarity on tomorrow’s rate decision. Although headline CPI continues to fall (thanks to lower gas prices), core CPI remains above 5%, and services prices show scant signs of slowing amidst persistent demand.
Heading into tomorrow’s meeting, the market is expecting the Fed to remain on pause with a 60% probability of a hike next month.
- If they hike and indicate a pause, we don’t expect much of a market reaction, as this just brings the July hike forward.
- If they stay on hold, then the focus will shift to the July meeting and the economic data between now and then.
- If they hike and don’t indicate a pause, we anticipate rates and risk assets to sell off, as markets consider rates going towards 6%.
