US Fed Also 'Stop and Go'... Key Indicator to Watch Next Week

As attention is focused on whether the United States will raise its benchmark interest rate for the second consecutive time, investors are paying close attention to economic indicators such as inflation to be released next week.

The Consumer Price Index (CPI), which reflects U.S. inflation trends, will be announced on the 12th (local time). The CPI surveys price changes of a total of 8,099 goods and services across all 50 states, and is an important indicator alongside the unemployment rate that the U.S. central bank, the Federal Reserve (Fed), refers to when deciding monetary policy.

Experts expect the June CPI to have risen by 3.0% year-on-year (according to Bloomberg consensus). This is a slowdown in the rate of increase compared to May (4.0%), indicating easing inflationary pressure. The last time U.S. consumer prices were below 3% was in March 2021 (2.6%). Core inflation is expected to have decreased by 0.3 percentage points from the previous month (5.3%) to 5.0%.

On the 13th, the Producer Price Index (PPI), one of the two main inflation indicators along with the CPI, will be released. The PPI is considered a leading indicator of the CPI. Experts estimate that June’s producer prices rose 0.4% year-on-year, continuing the trend of slowing inflation. In May, the PPI increased by 1.1%, marking the smallest rise since December 2020.

[Image source=AP Yonhap News]

Although inflation is showing a downward trend, it remains at twice the Fed’s target rate of 2%, keeping concerns high. At last month’s Federal Open Market Committee (FOMC) regular meeting, the Fed paused the benchmark interest rate at 5.00?5.25%, but there are growing worries that the Fed will raise rates further within the year and maintain high rates for a considerable period.

Employment data suggesting weakening labor market strength has been released, but the unusually high wage growth is insufficient to deter the Fed’s intention for further tightening. The U.S. Department of Labor reported on the 7th that nonfarm payrolls increased by 209,000 in June compared to the previous month. The increase was significantly slower than May’s 306,000 and below market expectations of 240,000, marking the smallest gain since December 2020. Average hourly wages rose 0.4% from the previous month, exceeding market forecasts of 0.3%.

Fed officials have stated that future rate decisions will be made at each meeting based on inflation and economic data, so the financial market is expected to react sensitively to the inflation-related indicators to be released next week. John Lynch, Chief Investment Officer (CIO) at Comerica Wealth Management, said, "The private employment data exceeded market expectations by more than double, increasing fears that the Fed will pursue more aggressive tightening."

This content was produced with the assistance of AI translation services.