West Texas Intermediate crude futures have risen to nearly $80 a barrel from $67 at the beginning of the month, stoking fresh concerns about inflation.
Focus on the IPC and Warsh’s testimony
Investors will get a new read on price pressures on Tuesday, when the Labor Department releases the June Consumer Price Index at 8:30 a.m. ET.
Economists surveyed by Bloomberg predict that the headline CPI will fall below a 4% annual rate. The report is expected to show the first drops in both headline and core inflation since January, following May’s readings of 4.2% and 2.9%, respectively.
Even if the figures meet expectations, they risk being seen as backward-looking in light of the recent rise in oil prices. If inflation, however, proves more persistent, the data could amplify concerns about the Federal Reserve’s path forward.
Attention will then turn to Mr. Warsh’s testimony at the Capitol. Given the Federal Reserve chair’s preference for limited forward guidance, investors will be watching for any signs on rates and inflation.
According to ING analysts, “if you want, you could emphasize the tameness of inflation expectations.”
They added that Mr. Warsh “has enough ammunition here to take the risk of a rate hike and instead hold firm. Even if he comes under pressure to hike, the wealth associated with the 5-year part of the curve tells us that any hike (if made) is likely to be reversed later, with the prospect of even bigger cuts than hikes.”
