Will the Fed "skip" the rate hike? Focused on tonight's heavy CPI data.

Since starting the interest rate resistance to inflation 15 months ago, the Federal Reserve may finally hit the pause button at the June meeting. Analysts generally believe that tonight's CPI data will not affect the Fed's policy of suspending interest rate hikes in June, but it will have a significant impact on the interest rate path in July and beyond.

How long will the Federal Reserve's tightening cycle continue?

At 8:30 p.m. on Tuesday, June 13th, Beijing time, the US Department of Labor will release May CPI inflation data. The median of Bloomberg's survey shows:

May CPI increased by 4.1% year-on-year, and April was 4.9%. The overall CPI rose 0.3% month-on-month, further slowing down from the 0.4% growth rate of the previous month.

The core CPI excluding energy and food shows a growth rate in line with the previous value, at 0.4%, up 5.2% year-on-year, with the previous value 5.5%.

Analysts generally believe that the rise in energy prices will help further slow down overall inflation, and core inflation will also continue to fall due to the slowdown in commodity prices compared to the previous month, but it will still maintain a high level of more than 5%, which is significantly higher than the Fed's medium-term target of 2% and will once again return to the characteristics of "stubborn service inflation, slightly falling commodity prices."

Since March, overall inflation and core inflation have begun to fall, and deflation in services and housing has begun. However, Morgan Stanley pointed out, "It should be noted that the inflation data began to fall from a very high level, and the speed is very slow." If the economy does not suffer a deep recession and the unemployment rate does not rise significantly, it is unlikely that core inflation will reach the 2% inflation target in the short term.

Mark Zandi, chief economist at Moody’s, believes that tonight's CPI data should be enough to convince the Federal Reserve to skip interest rate hikes at its meeting this week.

The May non-farm employment data in the United States was mixed, and the increase in new jobs far exceeded expectations, while the unemployment rate unexpectedly rose. CPI has become an important data for predicting the Fed's interest rate hikes in June and future paths. The CME FedWatch tool shows that the probability that the market thinks the Fed will suspend interest rate hikes at the June meeting is From a historical perspective, similar declines have only occurred during times of economic turmoil, such as pandemics, recessions, and the 1975 inflationary period.

UBS also believes that the base effect will significantly lower the overall CPI again next month, with overall inflation expected to be close to 3%; and the month-on-month increase in core inflation dropping to 0.2%:

"We believe that the June CPI report, which will be released on July 12, may show a decline in overall CPI inflation to 3.0% or 3.1%. We also expect a significant decline in the month-on-month increase in core CPI in June, as the rise in used car prices gradually eases."