Wednesday will be an important day for markets as investors look forward to the latest response on inflation and the Fed's interest rate cut. First, the May Consumer Price Index (CPI) report will be released, and there will also be the Federal Reserve's policy meeting.
UBS economists described months of macro risks concentrated into one day, with Wall Street paying close attention to these events, especially in light of recent strong economic data (such as unexpectedly strong growth in non-farm payrolls).
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ToggleThe CPI inflation report will be released at 8:30 tonight
The CPI report, which measures the cost of a basket of goods and services, is expected to show a monthly increase of 0.1% and a year-on-year increase of 3.4%. Excluding food and energy, core CPI is expected to increase by 0.3% monthly and 3.5% year-on-year. While the data shows inflation remains above the Fed's 2% target, some economists see a downward trend.
Investment strategists at Natixis Investment Management do not expect the CPI release to bring "significant volatility" and are expected to reflect continued deflationary trends.
Although the public and investors pay close attention to CPI, it is not the main indicator of the Federal Reserve. The Fed prefers the personal consumption expenditures (PCE) price index from the Commerce Department, which provides a broader measure of changes in consumer behavior. The Bureau of Labor Statistics will release the CPI report at 8:30 am ET (Taiwan time 6/12 20:30).
FOMC meeting: Interest rate decisions and economic forecasts
Coinciding with the release of the CPI report, the Federal Open Market Committee (FOMC) will finalize its forecasts for inflation, GDP and unemployment, indicating the expected path of interest rates through 2026. It is generally believed that the Federal Reserve will maintain existing interest rates and maintain the overnight benchmark lending rate at a range of 5.25% to 5.50%.
The FOMC will also update its summary of economic forecasts, which may be affected by the CPI report. Markets expect the Fed to adjust its dot plot , possibly showing fewer rate cuts in 2024 than the three previously expected.
Economists have a different view
Economists at Goldman Sachs expect two rate cuts starting in September, while others such as Bank of America predict one cut. Citigroup is even eyeing the possibility of three rate cuts, but expects the dot plot to show two. Goldman Sachs pointed out that due to the different opinions among FOMC participants, it is difficult to accurately predict the outcome.
No major changes expected: high interest rates likely to persist
After the meeting, the Fed will issue a statement and Chairman Powell will hold a press conference. Analysts do not expect major changes from the FOMC statement or Powell's remarks. In May, Powell opposed a possible rate hike, and talk of a rate hike has diminished since then.
Markets have had to recalibrate expectations from six rate cuts earlier this year to considering higher rates for a longer period.
