Markets continue to question if the Fed will pull the trigger on a first rare cut in June, and Wednesday’s US inflation data could go a long way in helping policymakers decide. It is predicted to remain relatively high, with the headline print potentially hitting a six-month peak at 3.5% on an annual basis.

Consensus forecasts monthly rises in both the headline and core readings at 0.3%. Even though these are a tick lower than the February print, they are still too high to bring inflation closer to the Fed’s 2% target in the near term.

That means the early inflation noise that kicked off the year continues to linger and is not a good sign for those clamouring for a rate cut at the end of this quarter. Chair Powell said the path back to the central bank’s objective would be bumpy and so it is proving.

Disinflation is stalling and underlying progress remains stubbornly slow. Sticky services and rising gasoline and energy prices all pose upside risks going forward. That said, the lagged impact of falling rents, which make up over half of total inflation, should impact CPI in the months ahead.

Market reaction

The 10-year US Treasury yield could make further headway towards the important long-term psychological level at 4.50%, if data is stronger than expected. That would impact the dollar which might then embark on another upleg and try to make fresh year-to-date highs.

Markets had been wary about pricing in less than the Fed’s long-held three rate cut scenario in the median dot plot for 2024, but this changed after Friday’s strong employment report. Traders currently predict around a 50% chance of a first cut in June.

Hotter inflation data will move the focus to the initial move being pushed out to July. A subdued report would need a series of soft inflation figures to give greater confidence to both markets and the Fed that a June rate cut is coming.

Here are the numbers predicted for the US inflation release: