Estimate ranges are important in terms of market reaction because when actual data deviates from expectations, it creates a surprise effect. Another important input into market reaction is the distribution of expectations.
In fact, although we can have a range of estimates, most forecasts may cluster at the upper end of the range, so even if the data comes within the range of estimates but at the lower end of the range, it can still create a surprise effect.
Consumer Price Index Y/Y
- 4.0% (10%)
- 3.9% (32%)
- 3.8% (36%) – Consensus
- 3.7% (20%)
- 3.6% (2%)
CPI M/M
- 0.3% (1%)
- 0.1% (3%)
- 0.0% (22%)
- -0.1% (36%) – Consensus
- -0.2% (36%)
- -0.3% (1%)
Core CPI Y/Y
- 3.0% (4%)
- 2.9% (39%)
- 2.8% (57%) – consensus
Core CPI M/M
- 0.4% (2%)
- 0.3% (36%)
- 0.2% (60%) – consensus
- 0.1% (2%)
- 0.0% (2%)
The only data point that will matter is the core CPI (mo/m) which is expected to come in at 0.2%, so you can forget all the rest. The Fed’s Williams said it would consider raising interest rates if monthly core inflation (using a measure of personal consumption expenditures) exceeds 0.2% in the second half of the year. Fed Governor Waller made it clear yesterday that he will not wait for long and that today’s report will be enough for him to vote in favor of a rate hike in July if the data exceeds expectations. Waller has been a great leading indicator since 2021.
If the data beats expectations, the odds of a rate hike at the next FOMC meeting will likely rise above 50% and the Fed will have to follow through to avoid a dovish surprise. This should translate into another wave of risk aversion, taking into account the ongoing US-Iranian crisis in the background. On the other hand, if the data comes in line with or even below expectations, we will likely see the potential for interest rates to fall in July, potentially creating some risk in the short term, although it may not be as strong as it would have been without the US-Iran conflict.
