The June CPI data may be the most important CPI data of the year, as the once elusive interest rate cuts now seem to be really on the horizon.

With the recent improvement in PCE data and the cooling of the job market, Powell's tone on interest rate cuts has noticeably softened in his recent speeches on Capitol Hill. Many people believe this could mean that the Fed starting an interest rate cut cycle in September is becoming a reality.

However, considering the historically volatile inflation data, although expectations are optimistic, no one dares to guarantee that the Federal Reserve's first rate cut will happen two months later.

Therefore, at this juncture, today's June CPI report becomes even more important.

Will the June CPI make the September rate Cut a Foregone Conclusion?

Analysts believe that if CPI inflation continues to slow down, the Federal Reserve will have even less reason to remain cautious and patient, which will also preserve the possibility of two rate cuts this year and officially open the door to the rate cut cycle in September.

Now, economists surveyed by institutions say that the June CPI annual rate will be 3.1%, lower than the 3.3% in May. The core inflation, which excludes the more volatile food and energy sectors, is expected to remain unchanged, with the monthly and annual rates expected to be 0.2% and 3.4% respectively. The economists surveyed predict that the U.S. June CPI report will show the smallest two-month increase in the core inflation rate since last summer.

Economics expects June's CPI report to be a 'really good' reading, to borrow Fed Chair Jerome Powell's characterization of recent inflation prints. That should set the stage for the Fed to start cutting rates in September, said economists Anna Wong, Chris Collins, and Stuart Paul.

Housing Continues to Slow Down, And Insurance Prices May Rebound

Looking at the breakdown, Tony Roth, Chief Investment Officer of Wilmington Trust, believes that housing and medical services may be key areas to watch. We've seen medical services [be] pretty tame, and that's important because medical services make up a much bigger portion of the PCE, which is the more important of the two inflation prints, Roth said.

In terms of housing, some analysis points out that due to the continued narrowing of the gap between new leases and renewal leases, housing inflation will slow down from last month - it is expected that rent will increase by 0.36%, and OER will increase by 0.39%. Goldman Sachs also said that the rent growth of single-family homes in the future will be slightly stronger, which may lead to the OER increase in the CPI composition to continue to exceed the rent increase.

Gas prices are thought to continue to decline on a seasonally adjusted basis based on May, and food prices are expected to be moderated due to the promotions or price cuts announced by major retailers before, but Deutsche Bank's economists pointed out that because some key prices in May were unexpectedly low, including items such as car insurance and air ticket prices may all rebound in June, but the increase will not be as fast as at the beginning of the year.

At the same time, Goldman Sachs also said that the rebound of car insurance in June may also be due to the lag of premium transfer to consumers: as car prices rise, repair costs increase, and medical and litigation costs increase, insurance companies are facing the pressure of premium price increases, but because insurance companies must negotiate with state regulatory authorities when raising prices, so the price needs a certain time to be transmitted to the consumer end.

Another 'Boost' Of The US Stock Incoming?

A CPI report showing a sharp decline in actual inflation will also further stimulate the current hot market sentiment: the S&P 500 index broke through the 5600 mark for the first time on Wednesday, and bonds also rebounded in July.

Tom Lee, co-founder and head of research at U.S. investment institution Fundstrat Global Advisors, said that this report is likely to be a decisive moment for the U.S. stock market bulls, and any reading below 0.25% in core CPI will help to push up the stock price. Data show that the monthly CPI report triggered a one-week rebound in the stock market in December last year, April, and May this year when inflation showed signs of cooling faster than economists expected.

Anything below 0.25% is a positive. It would just affirm that inflation is falling like a rock. I think the number of expected cuts will exceed two. If June CPI comes in soft, I think this number [of expected rate cuts] goes higher, and that's good for stocks, so we want to stay on target and stick with what's working, Lee said.

According to Andrew Tyler, head of U.S. market intelligence at JPMorgan, the probability of the June CPI reading being at or below 0.25% is more than 80%. In this case, the S&P 500 can achieve a maximum increase of 1.75%.

We have had multiple former Fed governors suggest that September is appropriate for a cut. With this in mind, we remain tactically bullish, Tyler wrote in the report.