US May CPI forecasts from 15 investment bank analysts. Hot, hot, hot ... FOMC sweating.
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Wednesday's CPI release is the most consequential data point ahead of the June 17 Fed decision, and a hot print would sharply reinforce the rate hike narrative that has taken hold since the start of the US-Iran conflict. Money markets have already moved aggressively, pricing a ne
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4 itemsHot CPI print - Wall Street inflation fears mount as break-even rates hit multiyear highs
Lead — The desk is increasingly concerned about rising inflation expectations following a hotter-than-expected CPI print, which has driven five-year break-even rates to their highest levels since October 2022. Per the full note [source], the 10-year break-even rate also reached 2.5%, indicating a market expectation of average annual inflation around 2.7% over the next five years. This shift in inflation sentiment is likely to pressure the Federal Reserve towards rate hikes, which could negatively impact risk assets. With oil prices surging approximately 78% year-to-date, the implications for both equities and fixed income markets are significant.
FX Daily: Dollar debasement trade in retreat
The desk views the dollar as maintaining its support ahead of a critical US May CPI release, as detailed in the latest research from ING. With real rates having surged by 60 basis points over the past six weeks, market participants are anticipating a likely December Fed rate hike contingent on core CPI performance. This sets the stage for potential dollar strength unless today's CPI data reveals weaknesses in consumer spending, particularly in the shelter sector, which might soften short-term rates and, by extension, the dollar's value. Per the full note, a solid core CPI number today would likely fortify bullish sentiment around the dollar.