The May US CPI report is one that should provide the FOMC with some degree of further confidence in the disinflationary process back towards the 2% target, with headline CPI remaining unchanged on an MoM basis, for the first time since last June.
Furthermore, core CPI slipped further on an annual basis, hitting a more than 3-year low at 3.4%.While such data will support the view that April's cooler price data was not a one-off, it is unlikely, on its own, to provide the FOMC with enough confidence to deliver a rate cut just yet...
Nevertheless, the data does lessen the chances of a hawkish shift in Chair Powell's rhetoric at the post meeting press conference, even if the dot plot is likely to show a median expectation of 50bp, from 75bp, of cuts this year.
Markets, as near as makes no difference, now price 2 cuts as the most likely outcome, in line with our base case expectation, for cuts to begin in September, followed by another such 25bp reduction in December.
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