Much to the relief of the US Fed and the global investors, the US CPI monthly index remained unchanged in May while the annual index rose 3.3 percent, a smaller increase than the 3.4-percent increase for the 12 months ending April. The core inflation index rose 3.4 percent over the past 12 months, showing a rise of 0.2 percent in May.

Now, all eyes are on the June US CPI data to be released by the Bureau of Labor Statistics on July 11, 2024, at 8:30 A.M. Eastern Time. On July 30-31, the US Fed will hold its FOMC meeting, and the market anticipates that policy rates will remain unchanged. Nonetheless, Powell’s news conference could provide insight into the Fed officials’ perspective for the future.

In his testimony to US Congress, Federal Reserve Chair Jerome Powell warned that prolonged restrictive policies could hinder economic growth and suggests that more data is needed to confirm inflation’s steady approach to target.

Fed Chair Jerome Powell stated the US economy is no longer overheated, with a cooling job market and a stronger case for interest rate cuts.

However, Powell steered clear of sending any signal for the timing of the first rate cut. Powell emphasized the Fed’s focus on economic data evolution and potential responses, rather than providing firm guidance on future interest rate actions. Meanwhile, the markets have discounted Fed action, expecting Powell to deliver the first rate cut in September.

The US central bank remains concerned about inflation stickiness despite a decrease from 9.1% in June 2022 to 3.3% in May 2024, with a rate cut only expected after a 2% CPI. Any indication of a surge in inflation or a decline in unemployment rates could be concerning for the markets and increase market volatility.

The economy is showing recovery signs, with earnings forecasts meeting or exceeding expectations for April-June. S&P 500 index, Dow Jones Industrial Average, and Nasdaq Composite all rose in the year’s first half.

US elections in November, US CPI data and the US labour market remain the biggest factors that could determine how the US markets close 2024.