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Will CPI Influence the Fed to Hit Pause?

Miguel A. Rodriguez
Miguel A. Rodriguez
13 June 2023

The release of the Consumer Price Index (CPI) today is expected to provide the market with a better understanding of the direction in which the Federal Reserve (Fed) may take its interest rate decision.  

As investors prepared for a week full of interest rate decisions from major central banks, stocks started the week on a stronger note. 

Despite being small, the gains in US futures were sufficient to push the S&P 500 Index into a bull market. Contracts for Nasdaq 100 technology also increased due to bets on the Fed pausing its rate hikes after ten straight increases. Technology stocks are the most sensitive to interest rates. 

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The index was also helped by large-cap companies, such as Tesla, which is on course for its 12th day of earnings as its electric car chargers are becoming the industry standard. Technically, Tesla has surpassed the resistance at 236 and is now moving upward towards the next level above 270, while being in the overbought area of the daily RSI. 

The Federal Open Market Committee meeting starts today. The decision on interest rates and the Fed officials' forecasts will be known tomorrow. However, this afternoon the Consumer Price Index (CPI), which is a key statistic that could affect the Fed’s monetary policy, will be released. A small decline in the core CPI to 5.3% is expected and headline CPI is thought to see a retracement to 4.1% from 4.9%. The lower the numbers released today, the more likely it could be that the Fed may leave rates unchanged.  

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The protagonist of the market yesterday was clearly crude oil. With the announcement that Saudi Arabia will cut its production by 1M barrels per day, prices were expected to stabilize but, in fact, the opposite happened. This is thought to be because on the one hand, some of the Organization of Petroleum Exporting Countries and their allies, known as OPEC+, still had room to increase production within the assigned quotas and, on the other hand, global demand is anticipated to decline. Goldman Sachs has actually lowered its pricing prediction for crude oil for this year. 

WTI oil was down around $3 a barrel yesterday and is nearing the lower end of its recent trading range at 64.80. 

DMO 13.06.2023 graph.png

Sources: Bloomberg, Reuters 

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Miguel A. Rodriguez
Miguel A. Rodriguez
financial_writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.