FOMC meeting and inflation report will shake the market, today is expected to be a day of volatile fluctuations.

This Wednesday will be a crucial day for the market as investors await the latest responses regarding inflation and the Fed's interest rate cut. The Consumer Price Index (CPI) report for May will be released first, followed by the Federal Reserve's policy meeting.

Economists at UBS described it as a day where several months' worth of macro risks are concentrated. Wall Street is closely monitoring these events, especially given the recent strong economic data such as unexpectedly robust growth in non-farm payrolls.

CPI Inflation Report to Be Released Tonight at 8:30 PM

The CPI report measures the cost of a basket of goods and services and is expected to show a monthly increase of 0.1% and a year-over-year increase of 3.4%. Excluding food and energy, the core CPI is expected to increase by 0.3% monthly and 3.5% year-over-year. While these figures indicate that inflation remains above the Federal Reserve's 2% target, some economists believe there is a downward trend.

Natixis investment management strategist expects that the CPI release will not bring "significant volatility" and is expected to reflect a continuing deflationary trend.

Although the public and investors closely watch the CPI, it is not the primary indicator for the Federal Reserve. The Fed prefers the Personal Consumption Expenditures (PCE) Price Index from the Commerce Department, which provides a broader measure of consumer behavior changes. The Bureau of Labor Statistics will release the CPI report at 8:30 AM Eastern Time on June 12th, 8:30 PM Taiwan Time.

FOMC Meeting: Rate Decision and Economic Projections

Simultaneously with the CPI report release, the Federal Open Market Committee (FOMC) will finalize its forecasts for inflation, GDP, and unemployment, indicating the expected interest rate path through 2026. It is widely believed that the Fed will maintain the current rates, keeping the overnight benchmark lending rate between 5.25% and 5.50%.

The FOMC will also update its economic projections summary, which could be influenced by the CPI report. The market expects the Fed to adjust its dot plot, possibly showing fewer rate cuts in 2024 than previously expected.

Differing Views Among Economists

Economists at Goldman Sachs anticipate two rate cuts starting in September, while others like Bank of America predict one rate cut. Citigroup even considers the possibility of three rate cuts but expects the dot plot to show two. Goldman Sachs notes the difficulty in accurately predicting outcomes due to differing opinions among FOMC participants.

No Major Changes Expected: High Rates Likely to Persist

After the meeting, the Fed will issue a statement, and Chairman Powell will hold a press conference. Analysts expect no significant changes in the FOMC statement or Powell's remarks. Powell opposed potential rate hikes in May, and since then, discussions about rate hikes have diminished.

The market has had to readjust expectations, shifting from earlier forecasts of six rate cuts this year to considering an extended period of high rates.