US Inflation and Consumer Numbers Eyed

It’s been a sluggish start to trading on Friday as traders await inflation and consumer spending numbers from the US that could add a further dovish layer to Janet Yellen’s comments on Wednesday.

Fed Already Growing Concerned About Subdued Inflation

It’s become very clear in recent weeks that an increasing number of Federal Reserve policy makers are becoming concerned about persistent subdued inflation despite evidence suggesting that the labour market is tightening, typically a trigger for stronger wage growth and higher prices. Fed Chair Yellen highlighted this herself to the Senate Banking Committee on Wednesday, an admission that weighed on US Treasury yields and the greenback while supporting stocks in the process.

A Cautious Fed Sends Equities to Record Highs, Dollar dips

We don’t have the plethora of policy makers making appearances today, with only Robert Kaplan scheduled to appear, but the US data that is due should fill that void quite nicely. Given Yellen, and many others’, comments in recent weeks, the CPI data will clearly attract a lot of attention, even if it isn’t the Fed’s preferred measure of inflation. The core PCE price index – the preferred report – typically comes a few weeks after the CPI and while the numbers tend to differ a little, the direction of travel is generally similar so the latter does offer value.

December Hike Already a Coin Toss

While headline CPI is expected to fall to 1.7% in June, from 1.9% in May, core CPI is seen unchanged also at 1.7%. This isn’t going to put policy makers fears at ease at all, particularly given that PCE is lower again. Should we see a larger decline then the yields and the dollar could be prone to slipping again, with the probability of another rate hike this year likely taking another hit, despite only sitting marginally above 50% currently.

Source – CME Group FedWatch Tool

The retail sales release, coming at the same time, is also a huge number given the importance of the consumer to the US economy. Markets could therefore become very volatile prior to the open, particularly if both numbers disappoint. We’ll also get earnings from JP Morgan, Wells Fargo and Citigroup today which could make it quite a lively end to the week.

DAX Unchanged Ahead of US Retail Sales, Inflation

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.