Market Pulse

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Market Pulse

In a speech in New York, Waller said that the direction core inflation takes "has very different implications for the path of

monetary policy" and is cognizant of the mistake the Fed made in 2021 by not responding sooner to the high inflation the Fed

was seeing at that time. He then said that he Fed will need to consider tightening policy soon if there is another high reading

on core inflation.

That high core inflation reading could come today, of course, with the US's June CPI report. We suspect that gasoline and

some food prices may be soft. After all, wholesale agricultural product prices dropped in June, and gasoline was about -8% lower

on a national basis, mid-month to mid-month, following the anticipation and eventual signing of the MoU between the US and

Iran of June 17. But core inflation may be harder to suppress. The most relevant "live" read for the core is the Cleveland Fed's

Inflation Nowcast, which has June core CPI at +0.23% month-over-month and +2.85% year-over-year. But a print close to that

could still round up to 2.9%, optically beating the rounded 2.8% consensus on Bloomberg. If there's a fillip for core inflation

today, it may be concentrated in core services ex-shelter, including airfares, medical care services, communication/recreation,

insurance, and tariff-sensitive goods. The prospect that the World Cup FIFA matches may have affected pricing power for hotels,

restaurants, and travel is also pertinent, although we would expect the bulk of that to show up in July. Finally, given Warsh's

focus on median inflation (a measure of inflation breadth), we'll look to see how the Cleveland Fed scores the median-CPI year-

over-year, and also look at how many components are running above 2.5% year-over-year. If the median ticks up (from 2.85%