Wall Street Skeptical of 'False Cooling' in Tonight’s U.S. CPI Data; Bond Market Odds Favor July Rate Hike

Huo Xing Finance reports: On July 14, the U.S. will release June CPI data at 20:30 Beijing time. The market generally expects that, driven by falling gasoline prices, the overall CPI for June may decline by 0.1% to 0.2% month-over-month, with the year-over-year growth rate projected to fall from 4.2% in May to 3.8%; core CPI is expected to rise approximately 0.2% month-over-month, with the year-over-year rate easing to around 2.8%. However, several Wall Street institutions argue that this recent cooling in inflation is primarily due to declining energy prices and does not signify that U.S. inflationary pressures have subsided. Housing costs, auto insurance, travel services, and tariff-induced price transmission to goods may continue to keep core inflation sticky. Meanwhile, bond markets are increasingly pricing in a Fed rate hike. Interest rate options show that the implied probability of a 25-basis-point Fed rate hike in July has risen from under 10% to approximately 50%, while the two-year U.S. Treasury yield remains above 4.25%. Previously, Fed Governor Waller stated that if core inflation rises again, a near-term rate hike should be considered. Institutions generally agree that even if overall CPI declines due to lower energy prices, the performance and composition of core CPI will remain critical in determining whether U.S. inflation has truly peaked and in shaping the Fed’s subsequent policy path.