US stocks are nearing records, while Powell is hoping for a rate cut

On Thursday, investors will digest one of the most important data points that will determine the Federal Reserve’s future interest rate policy: the June Consumer Price Index (CPI).

The inflation report, due to be released at 8:30 a.m. ET, is expected to show headline inflation of 3.1%, a slowdown from May’s 3.3% increase. This would be the smallest year-on-year increase since January, as another decline in energy prices is likely to have contributed to further downward pressure on the headline CPI.

Last month, consumer prices are expected to have risen by 0.1%, a slight increase compared to the flat monthly figures of May.

Meanwhile, on a core basis, which excludes the more volatile costs of food and gas, prices are expected to have risen 3.4% in June from last year and 0.2% from compared to the previous month, unchanged from May, according to Bloomberg data. .

“We expect the June CPI report to be another confidence booster after the undeniably good May report,” Bank of America economists Stephen Juneau and Michael Gapen wrote in a note last week.

The economists said that while the expected numbers are “not as low as May’s, this would be a good print for the Fed.”

Thursday’s inflation data comes at a crucial time for the central bank, after slowing labor market growth, coupled with recent testimony from Fed Chairman Jay Powell, kept hopes alive for a rate cut.

Powell, who will complete his semi-annual policy update to Congress on Wednesday, has largely stuck to his data-driven narrative – a positive sign given recent positive data. On Tuesday, he told the Senate Banking Committee that while there is evidence of lower inflation, the Fed still needs more “good data” to be confident that inflation is moving toward the 2% target .

Core inflation has remained stubbornly high due to higher costs for shelter and core services such as insurance and medical care. In May, non-residential services “surprisingly declined in May, largely due to a slight decline in auto insurance,” Bank of America’s Juneau and Gapen noted.

But economists expect the services (and motor vehicle insurance) category to rise in June, indicative of the “bumpy” path forward when it comes to price stabilization.

“Non-household services inflation should moderate over time given cooling wage inflation in the services sector; However, a sustained period of deflation is unlikely,” they warned.

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