Estimate ranges are important in terms of market reaction because when actual data deviate from expectations, it creates a surprise effect. Another important factor influencing market reaction is the spread of forecasts.
In fact, although we may have a range of estimates, most forecasts may be clustered at the high end of the range, so even if the data comes out within the range of estimates but at the lower end of the range, it can still create a surprise effect.
CPI 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 (YoY)
- 3.0% (4%)
- 2.9% (39%)
- 2.8% (57%) – consensus
Core CPI (MoM)
- 0.4% (2%)
- 0.3% (36%)
- 0.2% (60%) – consensus
- 0.1% (2%)
- 0.0% (2%)
The only data point that will matter is core CPI M/M, which is expected to be 0.2%, so forget about everything else. Fed spokesman Williams said he would consider raising rates if monthly core inflation (using the PCE measure) rises above 0.2% in the second half of the year. Fed Chairman Waller made it clear yesterday that he won’t wait that long and today’s report will be enough to vote for a rate hike in July if the data exceeds forecasts. Waller is an excellent leading indicator as of 2021.
If the data beats forecasts, the likelihood of a rate hike at the upcoming FOMC meeting will likely exceed 50%, and the Fed will be forced to take action to avoid a dovish surprise. This should lead to another wave of de-risking, with the US-Iran crisis looming in the background. On the other hand, if the data comes in at or below expectations, then we will likely see the odds of a July hike diminish and this will likely cause some risk in the short term, although it may not be as strong as it would have been without the US-Iran conflict.