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Tuesday’s CPI report could show that inflation continues to rise and the Fed is in a difficult situation

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A customer wearing a protective mask at the Albertsons grocery store in San Diego, California, June 22, 2020.

Bingwan | Bloomberg | Getty Images

The CPI report on Tuesday could put the market in shape ahead of next week’s Federal Reserve Board, especially if it’s hotter than expected.

The Dow Jones consensus estimates that the CPI will rise 0.4% month-on-month in August. Year-over-year, the CPI rose 5.4%, at the same pace as in July. Estimates show that excluding food and energy, the CPI is expected to rise 0.3% or 4.2% year-on-year.

The data is set to be released on Tuesday at 8:30 am EST.

Inflation data comes in Stronger than expected Raising concerns can be more lasting than federal authorities believe. The Federal Reserve Board is widely expected to meet next Tuesday and Wednesday to discuss a reduction in the bond purchase program, but will not officially announce its plans later this year.

However, some market experts say another warning about rising inflation could speed the Fed’s schedule. August Employment Report It was weaker than expected. Some market pros have pushed back expectations for the Fed’s announcement, with employment growth totaling only 235,000 in August, about 500,000 less than expected.

“If inflation is hot, it will mean that the timeline from the Fed is a bit faster,” said Ben Jeffrey, rate strategist at BMO US. He said he expects to raise interest rates at a faster pace than expected.

David Donavedian, US Chief Investment Officer at CIBC Private Wealth, said higher numbers could raise equity concerns and higher bond yields. The yield will be the opposite price.

He said the market will focus on which component of the consumer price index shows higher inflation.

Donna Bedian added that he is watching if temporary Covid-related sources of inflation, such as hotels and airfares, have begun to ease, or if inflation is due to a shortage of supplies. He said supply chain problems appear to be more serious than they were just three months ago and that inflation is expected to continue to be a problem.

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“Sure, inflation tends to be higher than expected. If that happens again, it will feed on this story that inflation will last longer than the Fed had planned,” he said.

Donna Bedian said he sees hot CPI values ​​as likely to encourage the Fed to move faster to announce the taper. He said he was watching for more sustainable things in the numbers, such as rising rents.

“The Fed continues to say that inflation is seen as temporary, but inflation data is worsening rather than improving,” said Sam Stovall, chief investment strategist at CFRA. “If it’s hotter than expected, I think the stock market will continue to be weak. I think investors are trying to determine if there are more of these concerns,” he said.

stock Posted a gentle comeback Monday, following an average five-day loss on the Dow Jones Industrial Average, is partly related to inflation concerns.

Some Fed officials in recent weeks believe that central banks should start cutting faster than delaying $ 120 billion in bond purchases a month. But Federal Reserve Board Chair Jerome Powell said he would like to see a stronger employment report before the taper is announced.

Stovall said he did not expect a formal announcement until November. The Federal Reserve Board’s departure from the bond purchase program is the first big step away from its simple policy and ultimately prepares for a rate hike.

“If both the headline and the core CPI are stronger than expected, I’m sure there will be a statement about inflation, but we may have to say nothing about tapering,” Stover said. Said.

Tuesday’s CPI report could show that inflation continues to rise and the Fed is in a difficult situation

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