All Eyes On June CPI: Will A Cooler Inflation Reading Temper Fed Rate Hike Concerns?

• Overall consumer prices are expected to have declined 0.1% over the month, the first monthly decline in over six years, according to a Reuters survey of economists. 
• Meanwhile, Federal Reserve Governor Christopher Waller’s comments at the New York Association for Business Economics on Monday have stoked worries for a Fed rate hike soon this year. 
• Mohamed El-Erian, Chief Economic Advisor at Allianz, cited parts of Waller’s speech in a post on X, noting that the comments “struck markets as quite hawkish.”

Markets are eagerly awaiting the June inflation data, expected on Tuesday morning, for cues on how it may impact the Federal Reserve’s monetary policy decisions. 

A Reuters report noted that the U.S. June consumer price index (CPI) is likely to clock a decline month-on-month amid lower energy prices due to a temporary ceasefire between the U.S. and ‌Iran. 

However, as tensions between the two countries have escalated over the past week, some experts believe that any reprieve in costs is likely to be temporary and, as a result, could prompt policymakers to at least consider tightening monetary policy.

What Are The CPI Expectations? 

As per a Reuters survey of economists, June inflation is expected to increase 3.8%, while overall consumer prices are expected to have declined ​0.1% over the month. If accurate, this would be the first monthly decline in over six years. May’s CPI increased 4.2%, the largest year-on-year rise since April 2023. 

“...the Fed technically focuses on a different measure of inflation, Core PCE, when setting its policy, but for traders, the CPI report is at least as significant because it’s released weeks earlier,” Matthew Weller, Global Head of Market Research at GAIN Capital, outlined in a post on Investing.com. 

He also noted that PCE has remained stubbornly above the Fed’s 2% target for a while now, “and leading indicators are suggesting it could rise further from here.”

"The level of prices is still compounding, and even with some grocery stores talking about trying to ​get people back in with some price cuts, it won't probably lower their overall bill much because there will be other factors," Diane Swonk, chief economist at KPMG, told Reuters. "People are still struggling to catch up," she added. 

Fed Rate Hike Concerns Increase

Meanwhile, Federal Reserve Governor Christopher Waller’s comments at the New York Association for Business Economics on Monday have stoked worries for a Fed rate hike soon this year. 

“If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term,” Waller said, while highlighting that his biggest concern has been the steady rise in core inflation in 2026. 

The Personal Consumption Expenditures (PCE) index, the Fed's preferred gauge of inflation, rose to an annualized 3.4% in May, up from 3% at the end of last year.

Waller said that inflation at present was being driven higher by a mix of tariffs, increasing energy costs and AI-related investment. 

Mohamed El-Erian, Chief Economic Advisor at Allianz cited parts of Waller’s speech in a post on X, noting that the comments “struck markets as quite hawkish.”

He said that the two immediate implications of this would likely be “a notable increase in market expectations for Fed rate hikes” as well as increasing “the importance of this week's US CPI and PPI inflation data.”

According to data from the CME FedWatch tool, the probability of a rate hike is at 41.2% in July, up from 8.3% a month ago. This figure rises to a probability of 77% in the Fed’s September meeting, from 26.6% a month ago. 

What’s Retail Saying?

One user said, “core CPI is all that matters tomorrow, headline is irrelevant because energy going back up. OER and services will push core. High inflation plus war is Bearish.” 

Another bearish user said, “ai bubble plus high inflation plus iran war. this will  be the great depression 2.0.”

Market Setup Ahead Of CPI Data 

At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, declined 0.04% in premarket trading, while the Invesco QQQ Trust ETF (QQQ) was up 0.34%. The SPDR Dow Jones Industrial Average ETF Trust (DIA) fell 0.25%. 

Retail sentiment for SPY was ‘neutral’ while it was ‘bullish’ for QQQ and DIA. 

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