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Week Ahead – Time for the Fed but first, it’s US inflation




The FOMC’s decision is the main event this week, but the May inflation report will show if inflation has cooled.  As gasoline prices fall and demand destruction begins to be evident in the data, pricing pressures should begin to ease.  The base effect starts to bring the headline inflation reading to close to 4.0%.  

If inflation is too high, the Fed may opt for a rate increase.  The rate decision may be close and we will start to see some disagreements.  While the US economy has remained resilient throughout most of this year, there are signs that it may be slowing down.  If policymakers decide to hold off on another rate hike, there is a chance that this ‘skip’ could end up being a pause.  Wall Street may be confident that tightening will soon end, but sticky inflation could cause the market to rethink the aggressive pricing of rate cuts at the end the year.  


On Thursday, the ECB will likely hike rates another 25 basis points. This is the last increase in this cycle. The markets are pricing another hike in July, but not…

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