Bank of America forecasts June CPI to rise, may impact Fed rate cut

Investing.com - Bank of America expects June’s Consumer Price Index (CPI) to show accelerating inflation, potentially reducing the likelihood of a Federal Reserve rate cut in September. The bond market appears to be pricing in these concerns, with the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) trading near its 52-week low at $86.63, according to InvestingPro data.

The bank forecasts headline and core CPI both rose 0.3% month-over-month in June, with core increasing 0.25% on an unrounded basis. This acceleration would push headline CPI to 2.7% year-over-year and core CPI to 3.0% year-over-year, representing increases of three-tenths and two-tenths respectively.

Core goods prices are expected to be the main driver of acceleration, with Bank of America projecting a 0.2% monthly increase largely due to rising used car prices. The bank also anticipates broad-based price increases beyond used cars, partly attributable to tariffs.

Non-housing core services inflation is also forecast to accelerate, with the bank expecting an end to recent deflation in discretionary services like lodging and airfares, alongside accelerating medical services inflation. Rent and owners’ equivalent rent inflation are projected to strengthen compared to the previous month.

Based on these CPI projections and other factors including rebounding equity prices, Bank of America’s preliminary forecast for core Personal Consumption Expenditures (PCE) stands at 0.22% month-over-month, which would maintain the year-over-year rate at 2.7% and reduce the chances of a September interest rate cut. The treasury market’s relatively low volatility (Beta: 0.49) suggests measured reaction to these expectations. For deeper insights into bond market trends and additional financial metrics, consider exploring InvestingPro, which offers comprehensive analysis tools and real-time market data.

In other recent news, the Federal Open Market Committee (FOMC) released minutes from their May meeting, indicating a cautious approach amid rising tariffs and economic uncertainty. Analysts from JPMorgan noted that the FOMC is maintaining a wait-and-see stance, with a focus on how tariffs might affect inflation and growth. Meanwhile, Moody’s recent downgrade of the United States sovereign credit rating from AAA is expected to have a modest impact on financial markets, according to JPMorgan analysts. They pointed out that major bond index providers had already reclassified U.S. government-related bonds into the AA category following Fitch’s downgrade in 2023. Citi’s rates strategist also commented on the downgrade, suggesting it should not significantly affect foreign demand for U.S. Treasuries, despite potential fiscal challenges. Additionally, Federal Reserve Vice Chair Philip Jefferson discussed the role of central banks in providing liquidity at the 2025 Financial Markets Conference. He emphasized the importance of central banks being prepared to provide liquidity in times of financial stress. These developments provide investors with insights into the current economic environment and potential impacts on financial markets.

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