June CPI to be released on the 11th
Expected to rise 3.1% YoY, slowing for the third consecutive month
Interest rate futures market reflects 77% chance of a cut in September
This week, the Consumer Price Index (CPI) data, which will provide clues about whether the U.S. Federal Reserve (Fed) will cut interest rates in September, will be released. With recent signs of cooling in the labor market, if the CPI slowdown trend continues, expectations for a September pivot (policy shift) are likely to spread further.
According to the U.S. Department of Labor on the 7th (local time), the June Consumer Price Index (CPI) will be released on the 11th.
Last month’s CPI is expected to rise 3.1% year-on-year, falling short of May’s increase of 3.3%. The CPI growth rates for April and May (3.4% and 3.3%, respectively) were both lower than the previous months (3.5% and 3.4%), so it is crucial to see whether the CPI slowdown trend has continued for three consecutive months. In particular, attention is focused on whether the housing cost inflation rate, which rarely slows down among the detailed components of the CPI, has eased.
With signals of a slowdown in the U.S. labor market being detected, if the June CPI data further confirms the disinflation (slowing inflation rate) trend, expectations for a rate cut in September will gain more weight. The U.S. unemployment rate for June, released on the 5th, stood at 4.1%, the highest level in two and a half years. Nonfarm payrolls increased by 206,000, a smaller increase compared to the previous month’s 218,000.
One day after the CPI release, on the 12th, the June Producer Price Index (PPI) will be published. The wholesale price index, PPI, influences the retail price index, CPI, over time. The PPI is expected to rise 0.1% month-on-month in June, exceeding the May figure of -0.2%.
This week also features remarks from Fed Chair Jerome Powell. Chair Powell is scheduled to appear before both the U.S. House and Senate on the 9th and 10th, respectively, to report on monetary policy. While diagnosing a slowdown in inflation, Powell is expected to reiterate that additional confirmation of easing inflation indicators is needed before cutting interest rates. Earlier, on the 2nd, Powell stated, "We are returning to a disinflationary path," and added, "Before embarking on accommodative policy, we want greater confidence that inflation is moving sustainably toward the 2% target."
In the market, expectations for a rate cut in September are rising amid signs of slowing inflation and a cooling labor market. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market currently reflects a 76.9% probability that the Fed will cut rates by at least 0.25 percentage points at the September FOMC meeting, a significant increase from 64.1% a week ago.
Anna Wong, an economist at Bloomberg Economics, forecasted, "The soft inflation readings from June to August are expected to give the Fed enough confidence to cut rates by the time of the September FOMC meeting."
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