US stocks hold near record highs as Powell bolsters rate cut hopes

On Thursday, investors will digest one of the most important data points that will shape the Federal Reserve’s future interest rate policy: the June consumer price index.

The inflation report, due at 8:30 a.m. ET, is expected to show headline inflation at 3.1%, slowing from a 3.3% gain in May. That would be the smallest annual increase since January, as another drop in energy prices is likely to add downward pressure to the core CPI.

Over the previous month, consumer prices are expected to have risen 0.1%, a slight increase from the flat monthly reading in May.

Meanwhile, on a “core” basis, which excludes more volatile costs for food and gas, prices in June are expected to rise 3.4% from a year ago and 0.2% from the previous month, unchanged from May, according to Bloomberg data.

“We expect the June CPI report to be another confidence-building measure after the undoubtedly good May report,” Bank of America economists Stephen Juneau and Michael Gapen wrote in a note last week.

Economists said the expected numbers “are not as low as May’s, but they will be a good number for the Fed.”

Thursday’s inflation data comes at a critical moment for the central bank after slowing labor market growth, along with recent testimony from Federal Reserve Chairman Jerome Powell, kept interest rate cut hopes alive.

Powell, who will wrap up his semiannual policy update to Congress on Wednesday, has largely stuck to his data-driven narrative — a positive sign given recent positive data. On Tuesday, he told the Senate Banking Committee that while there is evidence of lower inflation, the Fed still needs more “good data” to be confident that inflation is moving toward its 2% target.

Core inflation has remained stubbornly high, driven by rising costs for housing and basic services like insurance and medical care. In May, “non-housing services fell surprisingly, partly due to a slight decline in motor insurance,” note Bank of America’s Juno and Jabin.

But economists expect utility (and motor vehicle insurance) prices to rise in June, suggesting a “bumpy” road ahead when it comes to price stability.

They warned that “inflation in non-residential services is expected to slow over time as inflation in service wages slows; however, we are unlikely to see a prolonged period of deflation.”

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