- The US will release several important reports, including wholesale inflation, consumer inflation, and retail sales.
- Economists are forecasting inflation at 0.3% monthly and 3.6% annually.
- US citizens expect inflation to be at a higher 3.3% one year from now.
Equities ended slightly lower on Monday as investors stayed on the sidelines ahead of US inflation data. At the same time, they were preparing to receive the earnings reports of major US retail companies.
This week, the US will release several important reports, including wholesale inflation, consumer inflation, and retail sales. All these will significantly impact the outlook for Fed rate cuts. However, the market will focus on the Consumer Price Index (CPI). High inflation would mean the Fed still has more work to do. Therefore, the central bank would hold high interest rates for longer to lower inflation. Economists are forecasting inflation at 0.3% monthly and 3.6% annually.
US inflation has been higher than expected in the last three months, causing a significant decrease in expected rate cuts. At the same time, it has changed the tone of policymakers, who are now less dovish than they were at the beginning of the year. Federal Reserve Chair Philip Jefferson said the central bank should keep rates at current levels until inflation is easing.
At the moment, investors expect 40 basis points of cuts this year. This is a significant drop from the 150 basis points expected when the year began.
US inflation expectations (Source: Federal Bank of New York)
Meanwhile, recent data revealed that US consumers have raised their expectations for inflation a year from now. On Monday, a Federal Reserve Bank of New York poll showed that US citizens expect inflation to be 3.3% one year from now. This was an increase from the previous expectation of 3.0%. Moreover, it followed a similar survey from the University of Michigan, which showed that consumers expect inflation to be at 3.5%, up from 3.2%. High inflation expectations can undo some of the Fed’s work, as it could increase prices.
Markets are also gearing up for more earnings reports from retail giants like Walmart. Last week, equities ended with gains due to positive earnings. At the same time, investors were optimistic about poor employment data from the US, raising expectations that the Fed will cut rates in September.
