Today’s US inflation data release is set to heavily influence the outlook on future Fed rate hikes. As things stand, a July hike is all but priced in, though Fed Funds futures expect just about a one-in-three chance of an additional hike for the rest of the year.
Markets are anticipating further evidence of softening inflationary pressures, with a slowdown in both the headline CPI as well as the core year-on-year prints, down to 3.1% and 5% respectively.
Should the CPI numbers come in below market expectations, that could cut the Fed some slack in this rate-hike cycle. Such a narrative may bolster risk assets, while heaping more downward pressure on the US dollar that’s wilting as markets doubt whether the FOMC’s two projected hikes will indeed materialise.
However, should US inflation remain stubbornly elevated, that should embolden the FOMC hawks while prompting markets to ramp up bets for that post-July rate hike. Such repricing should offer some relief for dollar bulls while prompting the likes of gold and oil to pare recent gains.
