Don’t be fooled by CPI negative growth! June inflation will be revealed tonight, as bets that the Fed will raise rates in July jump to more than 40%.

US June CPI will be released at 8:30 PM tonight Taiwan time (7/14). The market generally expects that, due to a decline in energy prices such as gasoline, overall CPI will fall about 0.1% month over month, and the year-over-year rate will cool from May to around 3.8% to 3.9%; however, core CPI is forecast to rise about 0.2% to 0.3% month over month, with the year-over-year figure still sticking at around 2.8% to 2.9%. Multiple Wall Street firms have warned that this cooling is mainly coming from energy and does not mean inflation pressures in the US have disappeared.
(Background recap: Fed Governor Christopher Waller: “The AI frenzy” has become a new driver of inflation! No ruling out a rate hike in the near term)
(Additional background: No commitment to a July rate cut! In his debut, the new Fed chair Huaxu Guo challenges: “Inflation is too high,” delivering a firm rebuttal to Trump’s meddling)

Key takeaways

• June headline CPI is expected to fall about 0.1% month over month and slow to 3.8% to 3.9% year over year, mainly dragged down by energy prices
• Core CPI year-over-year growth is still expected to stick at 2.8% to 2.9%; housing and tariff pass-through keep inflation stickiness unresolved
• The implied chance of a 1-step rate hike in July has risen from below 10% to about 40%; the two-year Treasury yield is above 4.25%

US June Consumer Price Index (CPI) will be released tonight at 8:30 PM Taiwan time (7/14). The market views it as the most crucial inflation reading of the year. The market widely expects that, weighed down by falling energy prices such as gasoline, overall CPI will decrease by about 0.1% month over month, and the year-over-year rate will ease from May to around 3.8% to 3.9%; core CPI (excluding food and energy) is forecast to rise about 0.2% to 0.3% month over month, with the year-over-year rate falling back to 2.8% to 2.9%.

That said, multiple Wall Street institutions have poured cold water. They believe this inflation slowdown is likely due to a pullback in energy prices and does not mean inflation pressure in the US has already eased. Housing, auto insurance, travel services, along with tariff transmission into goods prices, could keep core inflation sticky.

The bond market is not waiting for rate cuts—shifting to bets on hikes

More noteworthy is where capital is heading. While most people are still waiting for rate cuts, the bond market is actively adding to bets that the Federal Reserve will raise rates. Interest-rate options show that the implied probability of the Fed hiking by 1 step in July (25 basis points) has risen from below 10% a month earlier to around 40%, and the two-year US Treasury yield has also held above 4.25%.

What adds fuel to the fire is Fed Governor Christopher Waller. He said earlier that, if core inflation prints another high reading this week, the FOMC would have to consider tightening policy in the near term—meaning raising rates. This hawkish remark is consistent with the “inflation is too high” direction repeatedly emphasized since newly appointed Fed Chair Kevin Warsh took office.

The real key is the core numbers

Market participants generally believe that even if headline CPI retreats due to being pulled down by energy, what determines the Fed’s outlook is the performance of core CPI and the structure of its components. Whether this report can loosen is key to judging whether US inflation has truly peaked—and the Fed’s next policy path.

Common questions

Why might June CPI show negative growth, yet people are still worried about inflation?

The overall CPI month-over-month decline is mainly due to falling energy prices such as gasoline. But even so, the year-over-year growth of core CPI excluding food and energy remains stuck at 2.8% to 2.9%, and inflation pressure has not truly eased due to housing, auto insurance, and tariff pass-through.

Will the Fed raise rates in July?

Not decided yet. Interest-rate options indicate the implied probability of a 1-step rate hike in July is around 40%. Fed Governor Christopher Waller said that if core inflation prints high again, the FOMC needs to consider raising rates in the near term.