Preview: Tonight's July CPI Data Release Imminent, May Directly Impact Fed's September Rate Hike Decision

August 12th. The U.S. Bureau of Labor Statistics will release the July CPI data at 8:30 p.m. Beijing time tonight. According to the Dow Jones consensus forecast, the overall CPI is expected to increase by 0.1% month-over-month, and the core CPI is expected to increase by 0.2% month-over-month. On a year-over-year basis, they are expected to rise by 3.4% and 2.5%, respectively, each dropping 0.1 percentage points from June but still significantly above the Fed's 2% target. Currently, traders have priced in a 50% probability of a rate hike in September, indicating that tonight's data will directly impact the direction of the scale.

RSM Chief Economist Brusuelas said that if the data meets expectations, two consecutive months of moderate inflation readings will give the FOMC more time to observe, and the "committee will continue to stand still for the remainder of the year." In June, the CPI fell by 0.4% month-over-month, and the core CPI remained flat, with the main contributing factors being the decline in energy prices and the slowing of housing costs. If the data exceeds expectations, the situation will quickly change.

Bank of America expects that if the Fed's key inflation indicators average a 0.25% increase over the next two months, it is almost certain that a rate hike will begin in September; if the average increase is below 0.2%, the rate hike may be postponed; if it is between 0.2% and 0.25%, the September decision will be a toss-up.

At the July FOMC meeting, three members already voted to immediately raise rates by 25 basis points, and Governor Brainard recently stated that if the inflation data does not cooperate, a rate hike would be deemed necessary. The market also expects a relatively higher possibility of a rate hike in October or December. The final direction still depends on Powell's policy stance—whether he is willing to pull the rate hike trigger, or if his dovish stance at the July press conference better represents his policy.