US Inflation Falls Faster than Expected, Fed Hike Still Likely
Aa
Share
- US inflation falls faster than expected; CPI 3% (YoY), Core CPI 4.8% (YoY)
- July Fed hike still highly likely despite inflation drop
- Nasdaq hits 18-month high after the data
Financial markets are buzzing at the US open on Wednesday, with investors buoyed by a very promising inflation report from the US.
The report not only beat at the headline level but core actually slipped even further, dropping to 4.8% for the first time since October 2021. The monthly data was also extremely encouraging, with headline and core falling to 0.2% which was lower than the consensus forecast in both cases. It really is just what the doctor ordered.
Of course, there’s been plenty of setbacks over the last couple of years so we don’t want to get too carried away with one inflation report but it really is about as good as we could have realistically hoped for.
That said, it’s unlikely to change the outcome of the debate that takes place in two weeks. The Fed is still extremely likely to hike by 25 basis points, rightly or wrongly, as the labor market data on Friday simply wasn’t good enough. In fact, the wages component was quite the opposite and will likely convince the FOMC that one more hike is warranted, which is what markets are still heavily pricing in.
Fed Interest Rate Probability
But that may well now be the last and if we can see any further signs of progress over the summer then that will likely end the debate altogether, shifting the conversation from how many more hikes to the timing of the first cut.
