July CPI Report: Wall Street Anticipates Impact on Stock Market Recovery | Analyst Insights
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Investors on Wall Street are eagerly awaiting the release of the July consumer price index (CPI) inflation report, set to be unveiled on Wednesday, Aug. 14. Following a recent global sell-off, equity markets have shown resilience, but the upcoming CPI data could shift the tide. Will the stock market crash?
There is a possibility.
After the tumultuous global correction triggered by the July jobs report, markets have somewhat stabilized. While the S&P 500 has not fully rebounded to its previous high, it has made significant progress since the drop last Monday. However, the July CPI figures could disrupt this recovery.
This time, economists will be closely monitoring for signs of decreasing prices, indicating a potential start to the Federal Reserve’s rate-cutting measures in September.
Forecasts suggest a 0.2% rise in the July CPI for both headline and core inflation (excluding Food and Energy), maintaining the annual inflation rate at 3%. Core inflation is expected to dip to 3.2%, the lowest level since April 2021.
However, there is a margin of error in these predictions, especially for core inflation. Economists estimate core inflation could range between 0.1% to 0.3% in July.
Implications for Stock Market Crash at September Policy Meeting
The significance of the CPI lies in the Fed’s response to it. While a September rate cut is widely anticipated, the magnitude of the cut remains uncertain.
According to the CME Fed Watch tool, traders are pricing in a 45.5% chance of a 25 basis point rate cut and a 54.5% chance of a 50 bp cut. This could lead to a terminal rate between 5%-5.25% and 4.75%-5%, respectively.
With the labor market showing signs of weakness, the Fed is expected to act decisively to prevent an economic downturn. Markets are currently pricing in a 77% chance of a 1% rate reduction by year-end, split over the last three Fed meetings of 2024.
The July CPI data will provide insights into the Fed’s future actions in the final quarter of the year. Elevated inflation could prompt a negative market reaction to a slower rate cut trajectory.
Disclaimer: The opinions expressed in this article are those of the writer and do not reflect the views of this publication. The writer does not hold any positions in the securities mentioned.
Editor’s Note: The responsible editor has no positions in the securities mentioned in this article.