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US CPI forecast distribution could sway odds of a July Fed hike
Markets may reprice quickly if core monthly inflation (PCE measure) tops 0.2%, lifting the probability of a July rate hike above 50%, according to Forexlive.
Forecast dispersion matters for how markets react to US inflation data, Forexlive said, because even outcomes that fall within the overall estimate range can still trigger a surprise if they land toward the lower end where fewer forecasts cluster.
Forexlive highlighted that the key figure for the immediate reaction is core CPI month over month, expected at 0.2%. It also pointed to comments attributed to Fed officials: Fed’s Williams indicated he would consider rate hikes if monthly core inflation under the PCE measure runs above 0.2% in the second half of the year, while Fed’s Waller said he would not wait that long and that upcoming data could be enough for him to support a July hike if the report beats expectations.
The outlet added that if inflation data beats forecasts, the probabilities for a July hike are likely to rise above 50%, potentially prompting the Fed to avoid what it described as a dovish surprise. It expects that could contribute to another risk-off wave, with the US Iran crisis noted as an ongoing background factor.
By contrast, if data comes in line with expectations or below, Forexlive said odds for a July hike would likely drop and could trigger a near-term risk-on move, though it may be less strong than it would be without the US Iran conflict.