July's consumer price index (CPI) report favored investors and the Federal Reserve. Headline CPI rose 0.1% last month from June, and at an annual rate of 3.4%, matching Dow Jones consensus estimates from economists. Core CPI, which strips out volatile food and energy prices, also matched estimates.
The release boosted stocks as it signaled that inflation wasn't running away amid the ongoing U.S.-Iran war. It also gave the Fed some room to keep interest rates unchanged at their next policy meeting in September.
Chris Rupkey, chief economist at FWDBonds, noted, "We don't see any alarm bells ringing in today's CPI inflation report that would tell Fed officials to rush out and hike interest rates next month."
Indeed, the CME Group's FedWatch tool showed a 62% chance the Fed will keep its overnight rate in a range of 3.5%-3.75%.
However, Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, stated, "The September decision now comes down to the August payrolls and CPI combination."
Here's what others on the Street had to say about the July inflation print:
- Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management: "One down, one to go."
- Ryan Weldon, portfolio manager at IFM Investors: "The July CPI release presented a mixed inflation picture."
- Skyler Weinand, chief investment officer at Regan Capital: "Wednesday's CPI was in-line with expectations, which is welcome news."
Thus, the July CPI report may keep Fed officials at bay from raising rates in September, but we still need to wait for other key data.
