Tonight's CPI report is coming out, with market expectations of year-over-year rising from 3.8% to 4.2%, hitting a three-year high. Everyone is saying inflation is exploding, rate cuts are unlikely, and U.S. stocks will fall. But honestly, I have a slightly different view.

First, could this 4.2% already be priced in? Over the past two weeks, the S&P has already dropped 1.5%, and tech stocks are even worse. Wall Street folks are always ahead of the game. If the actual data turns out to be 4.1% or 4.2%, it might actually be a sign that the bad news is already priced in, and there could be a short-term rebound.
Next, what really matters isn’t the overall number, but the structure inside it. The most critical parts are used cars, rent, and service inflation. If core services month-over-month still exceeds 0.5%, then it’s truly bad news—rate cuts can be completely ruled out. The overall figure can be manipulated, but the breakdown can’t be fooled.
There’s also something I think people might be underestimating. The market currently thinks the probability of a rate hike in July is only about 11%, but I feel that’s too optimistic. If CPI stays above 4.5% over the next two months, the Fed’s patience might not hold, and a rate hike could actually happen. This risk isn’t being priced into U.S. stocks or bonds right now.
Anyway, tonight’s volatility will definitely be significant. Don’t bet on a one-sided move; it’s too risky. But if the data comes out roughly in line with expectations and service inflation isn’t exploding, those who missed out earlier might want to look for an entry point.
Let’s wait and see after the data is released.