Market Update: Inflation Data and Economic Outlook
Consumer price index (CPI) figures, set to release at 8:30 a.m. ET, are anticipated to reflect a slight uptick in inflation rates for May, largely influenced by recent tariffs that have begun to elevate prices on various goods. The S&P 500 futures are holding steady after a three-day upward trend, with Tesla emerging as a significant early gainer. Investors are attentively awaiting the details of a U.S.-China trade agreement following two days of talks in London.
While today’s CPI data is not expected to substantially impact next week’s Federal Reserve meeting—where a rate cut remains highly unlikely—analysts believe that the inflation and producer price index readings could shape policymakers’ projections for interest rates and inflation due next Wednesday.
Expectations for CPI
Economists on Wall Street project a 0.2% increase in the overall CPI for May. A relatively calm year-ago figure suggests that the annual inflation rate may rise to 2.5%, up from 2.3% in April. The core CPI, which excludes volatile food and energy prices, is expected to increase by 0.3%, nudging the annual core inflation rate to 2.9% from 2.8%.
Notably, a recent analysis from David Self, an economist, indicated that core goods prices likely rose 0.28% in May, a significant increase from just 0.06% in April. He noted that businesses may have temporarily held off on passing on costs prior to the announcement of tariff changes. "The uncertainty surrounding tariff rates may lead to pronounced inflation in the summer months," he predicted. On the flip side, declines in prices for lodging and air travel may have tempered overall services inflation.
Federal Reserve Rate-Cut Speculations
Current market indicators suggest there is only a slim chance—0.1%—of a rate cut during the June 18 Federal Reserve meeting. The likelihood of a reduction at the July 30 meeting has decreased to 14.5%, down from 28.5% the previous week. This shift is attributed to reduced apprehensions regarding the potential impact of China’s rare earth export bans on U.S. manufacturing sectors.
Markets are leaning toward a 60% probability that the Federal Reserve may resume rate cuts by the September 17 meeting, with a close split in overall expectations for the year—59% forecasting a 50 basis points cut and 39% anticipating just a 25 basis points decrease.
S&P 500 Performance
As of early Wednesday, S&P 500 futures dipped 0.15%. The index had previously gained 0.55% on Tuesday, marking a third consecutive rise and leaving it just 1.7% shy of its all-time closing high recorded on February 19.
In other market news, a preliminary trade agreement between the U.S. and China was announced late Tuesday, addressing critical issues around China’s rare earth exports. Tesla’s stock rallied by about 2% in early trading, showing signs of recovery following last Thursday’s declines. CEO Elon Musk has set a tentative launch date for Tesla’s robotaxi service in Austin for June 22, sparking additional investor interest.
This upcoming economic data and trade developments will likely remain focal points as investors navigate the evolving landscape of the financial markets.
