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June CPI inflation report preview

An Aldi supermarket in Alhambra, California, USA, Thursday, June 27, 2024.

Eric Thayer | Bloomberg | Getty Images

Thursday’s widely anticipated inflation report could solidify market expectations United States Federal Reserve Rate cuts 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 a speech by Fed Chairman Jerome Powell Two days of testimony This week on Capitol Hill. 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.

Fed Chairman Powell: Economy is no longer overheating

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 unchanged month by month An increase of 3.3% compared with the same period last 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 Component changes What makes up the CPI index will also be in focus Thursday, especially if the number differs from expectations. Housing and health care services may be key areas to watch, said Tony Ross, chief investment officer at Wilmington Trust.

Housing and medical services are also key components of the personal consumption expenditures index, the Fed’s preferred inflation gauge rather than the CPI.

“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

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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 uptick 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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