CPI bombshell makes for an uncertain environment where cash may be king
US inflation has climbed to a 41-year high. The headline CPI for June printed at 9.1% YoY (8% forecast) and 1.3% MoM (1.1% forecast). Of concern, the higher inflation is across the basket, with most components higher. Even with volatile items stripped out, the core numbers were higher than expected - 5.9% YoY (5.7% - forecast) and 0.7% MoM (0.5% - forecast).
The Fed will release the FOMC statement on Wed, 27 July. Currently, futures are pricing at 60% probability for 75bps and 40% for a full 100bps. This hawkishness has pushed the 2-10 yield curve further into inversion. The bond market is concerned about future economic activity and recession fears.
Rate hikes are designed to dampen demand-pull inflation. However, the gasoline index was up 11.2% MoM, and food inflation was 1% higher. I.e. until there are signs of relief on the supply side, higher rate hikes will hurt economic activity. This stagflationary setup puts policymakers in a challenging position.
A policy cannot deal with the supply shocks impacting the economy. Market participants are aware of this and will continue looking for a return commensurate with the heightened risk. In this environment of uncertainty, prices are still adjusting. Thus it seems, for the time being, participants may have settled on "cash is king."
Image by Steve Buissinne from Pixabay
Russell Shor
Senior Market Strategist
Russell Shor is a Senior Market Strategist at FXCM, having been promoted to the role in 2025 in recognition of his depth of insight and consistent delivery of high-impact market analysis. He originally joined FXCM in October 2017 as a Senior Market Specialist.
Russell holds an Honours Degree in Economics from the University of South Africa, is a certified FMVA®, and a full member of the Society of Technical Analysts (UK). With over 20 years of experience in financial markets, his work is renowned for its clarity, precision, and strategic value across asset classes.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.