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The market is waiting for the US May PCE inflation this week, and hopes that US inflation will slow down. Now that several countries have released CPI, I think the Fed will also pay attention to these data, even if they are not from the United States.
Last night Canadian CPI came in higher than expected which is particularly dangerous as the Bank of Canada cut rates just a few weeks ago which was a disaster for them. Remember the ECB cut rates a few weeks ago while raising inflation expectations which sent mixed signals to the market. This morning Australian CPI also came in higher than expected pushing the AUD higher as the market thinks the RBA may even raise rates.
So what does all this mean for the Fed? I think they will definitely be more cautious before cutting interest rates. They don't want to see CPI rebound right after they announce interest rates like Canada did, nor do they want to raise inflation expectations while cutting interest rates like the European Central Bank did. They definitely want to see more data to prove that CPI and inflation are indeed falling. So I think one rate cut this year is the limit, and they may still choose not to cut interest rates.
The US will release the PCE this Friday. If the data is slightly lower than expected, the impact on the Fed may not be that big, because this month alone is definitely not enough. They need three or four consecutive months of such good data, because they have seen from the experience of other countries that inflation data will fluctuate. Interestingly, last night, Fed Governor Bowman even hinted at raising interest rates, although I think it is impossible, but there will definitely be no interest rate cuts in the next three or four months.
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