All eyes will turn to today's CPI data following Friday's surprisingly poor jobs report. According to the jobs report that comes in July, the United States shed 23,000 nonfarm payroll jobs in July, underperforming economist estimates calling for an increase of 83,000 payrolls, the revision was a shocking 103,000 payrolls lower in addition to May and June reports. This provides some breathing room for the Fed, but inflation can change all that.
What's Expected
Today will see the release of July CPI from the BLS today at 8:30 AM Eastern Time (12:30 PM GMT), marking the first of 5 inflation reports traders will observe prior to the September 15-16 FOMC meeting:
Metric Prior (Jun) Forecast (Jul)
CPI (YoY) 3.5% 3.4%
Core CPI (YoY) 2.6% 2.5%
CPI (MoM) -0.4% ~0.3%
Prediction markets are giving a ~46% probability to a core CPI of 2.5% and a 32% chance of a reading of 2.4%. The Cleveland Fed's nowcast, a real-time inflation forecaster of both headline CPI and core CPI, is calling for July headline CPI to come in at 3.39% and core CPI at 2.43% respectively.
Why This Report matters
The oil shock is a wildcard. Oil prices jumped roughly 21% in July due to Iran-related conflict disrupting energy supply. Energy price hikes impact almost every facet of an economy, not only rising the cost of transportation, but manufacturers will be impacted too, forcing them to raise their production prices, eventually passing the increased cost onto consumers.
Warsh is watching. The story from a Financial Times report, based on people familiar with his opinions, stated Fed Chairman Kevin Warsh is keeping open the possibility of increasing rates in September should inflation data come in hotter than anticipated. Markets still expect a 2.4% inflation rate over the long term; a rate that has been relatively consistent for a year, and 30-year Treasury bonds are hovering near 20-year highs; the bond market signaling that the inflation fight is not over yet.
The Sept. Gauntlet: After today, the markets will turn their attention toward PPI on August 13, PCE on August 26, PPI on September 10, and finally CPI on September 11; less than a week before the Fed decides.
The Three Scenarios
Goldilocks (3.3-3.4% YoY | Core easing to 2.5%):
A market-friendly outcome that confirms inflation is still cooling, without falling apart.
DXY: May weaken to the 98.60-99.00 range
Gold: May rise to the $4,300+ range
Fed Odds: Sept. Hold is likely to remain above 55%
Hot (Above 3.5% YoY | Core sticky above 2.6%):
This report would mark the third consecutive month of above target inflation and further bolster the argument for a Sept. Rate increase. If today’s CPI is robust, followed by strong PPI and PCE figures, Sept. Fed hike odds may shoot up.
DXY: June rally is probable toward 101.80-102.00
Gold: June test of $4,000 support may be inevitable
Fed Odds: Sept. Hike may rise to above 50%
Cold (Below 3.2% YoY | Core below 2.4%):
The most bullish scenario for risk assets. The rate hike bets for 2026 may have to be abandoned in their entirety.
DXY: June sell-off may accelerate toward 98.00
Gold: August above $4,200, aiming for $4,300+
Risk Assets: Dovish expectations will support rally
What to Watch
Core CPI (not headline)-the primary focus for the Fed. Services inflation, the stickiest segment. Revisons to last month's number-these can change the entire narrative.
The crux: a CPI reading that prints hot, coupled with other sturdy inflation figures like PPI and PCE will continue to strengthen the case for continued tighter monetary policy. With oil jumping 21% last month and Treasury yields still trading near 20-year highs, a hike in September is no longer just a possibility, it's highly probable.
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