US inflation data is set for release today at 4.30 PM Dubai time, with markets awaiting how the real reading turns out compared to expectations and the previous data. Forecasts indicate that inflation is expected to slow to 3.4% on an annual basis.
CPI data is considered one of the most important data points that affects the Federal Reserve’s decisions. From the Fed’s point of view, inflation is still far from its 2% target, suggesting that tight monetary policy will continue while inflation remains high.
On the other hand, the market outlook reflects optimism in that today’s reading may prompt the Fed to start lowering interest rates during its upcoming meetings, given that recent data has already indicated the start of a slowdown in the US economy.
Consumer confidence fell to its lowest levels since November last year, while unemployment claims rose to the highest level since August last year. Markets also witnessed a decline in US labor market data.
Expected scenarios
If today's reading is higher than 3.5%, this may prompt the Fed to postpone lowering interest rates, given that inflation remains significantly higher than the central bank’s target. Analysts expect this outcome to positively impact the US dollar and spark potential declines in stocks and oil.
However, if inflation declines below 3.4%, this may prompt the Federal Reserve to start reducing interest rates, given that inflation is moving towards the central bank’s target.
US Inflation Data April 2023-24
Figure 1: US inflation data over the past year. Source: US Department of Labor
Today’s inflation data will likely come with strong volatility in the financial markets. Traders should consider that the initial market reaction, regardless of the nature of the actual reading, may be sharp and volatile before the markets become stable. It should also be noted that traders all have different ideas and beliefs in the way they interpret the information issued, and therefore prices may not move 100% according to that information.
The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.