The Consumer Price Index for April, due Tuesday morning, could test Wall Street’s renewed bullishness after a major U.S.-China tariff rollback fueled risk-on sentiment.
Despite a slightly defused trade war, the inflation print could tighten the Fed’s hand further, especially if prices came in hotter than forecast.
Wall Street economists agree that the annual headline inflation rate will remain at 2.4%—the 49th straight month above the Federal Reserve’s 2% target.
Inflation is forecast to rebound from a 0.1% drop in March to 0.3% in April. Core CPI, which excludes food and energy, is expected to rise 0.3% monthly and hold steady at 2.8% annually.
Bank America’s economist Stephen Juneau warns that “larger increases are in the pipeline” due to front-loaded demand and the lingering impact of April’s tariff shock.
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Fed Rate Cut Expectations Collapse After US-China Trade Truce
The surprise U.S.-China trade breakthrough on Monday delivered another blow to short-term Fed cut bets. With tariffs slashed by over 100 percentage points for at least 90 days, economic uncertainty tied to supply chains and pricing has decreased.
Markets now price just an 8% probability of a 25-basis-point cut in June, according to CME FedWatch data. That’s down from nearly 40% a week ago. The odds for a July cut stand at 42%, while expectations for two cuts by December have dropped to 72%, from nearly three cuts priced before last week’s FOMC meeting.
The Federal Reserve kept …