One number lands Wednesday morning, and Wall Street cannot agree on what comes next. The July CPI (consumer price index) will hit markets with September Federal Reserve (Fed) rate odds split down the middle.
A soft print could lift stocks, bonds, and crypto together. A hot one could corner the new Fed chair and revive rate-hike bets.
Why the July CPI Report Is a Coin-Flip Moment for the Fed
CME FedWatch data shows a 50.1% chance the Fed holds in September and a 49.9% chance it hikes. That is as close to a dead heat as markets get. One week ago, hike bets stood near 58%.
Forecasters expect a mild report. A Wall Street Journal survey of 15 banks puts July headline inflation at 0.12%, or 3.4% year over year. The core measure, which strips out food and energy, is seen at 0.22%.
That core figure is the real test. Monthly readings at or near 0.2% fit a path back to the Fed's 2% goal. Anything higher does not.
The stakes jumped after the July jobs report showed the economy shed 23,000 jobs. Still, not every desk expects tighter policy. Wells Fargo's chief economist sees the Fed holding rates through 2026.
Goldilocks Trade or Stagflation Trade
HSBC expects a second straight soft print, after June's headline prices fell 0.42%. In that case, the bank sees yields falling and hike bets fading. Risk assets would get their Goldilocks backdrop back.
