It’s inflation day today and tomorrow! At 8:30 a.m. ET this morning, we will get the June CPI print, while PPI is due Friday.

Stocks are coming off yet another set of records on Wednesday, and it’s possible that an as-expected or better-than-expected inflation report can send equities even higher.

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Inflation forecasts are often wrong

Economists expect the June CPI report to confirm a third month in a row of cooling inflation, which would raise the likelihood of the Fed cutting interest rates in September.

The median estimate is 3.1% year-over-year, according to FactSet.

For the month of May, that clocked in at 3.3%, lower than the expected 3.4%. 

Fed Chair Jerome Powell, for his part, told lawmakers Wednesday that he needs to see more evidence that inflation is still moving toward the central bank’s 2% target. 

“The question is: Are we sufficiently confident that it is moving sustainably down to 2%?” Powell said on the second day of his two-day testimony. “And I’m not prepared to say that yet.”

While policymakers and prediction markets are banking on cooler inflation, history suggests we have more uncertainty to come, as far as forecasts.

Economists have long had trouble making accurate inflation calls, and today’s data dump looks as up in the air as ever.

Over the last 12 months, CPI has come in hotter than expected six times, cooler than expected four times, and in-line with expectations only twice, per FactSet.

Those figures hold across a longer time span, too.

Over the last five years, CPI has come in:

• Hotter than expected 53% of the time

• Cooler than expected 30% of the time

• In line with expectations 17% of the time

As for the latest batch of estimates, the 13 CPI predictionFs tracked by FactSet range from 2.7% to 3.50%, for a total spread of 80 basis points.

That’s higher than the five-year average spread of 49 basis points. 

Consumers, meanwhile, have little conviction that the Fed will bring inflation down to its 2% target.

The New York Fed’s latest survey of consumers showed respondents’ one- and three-year inflation expectations both remain at about 3.0%.

That said, Powell isn’t convinced that inflation has to fall to target before rate-cutting begins. 

To delay a move until hitting that benchmark, in his view, would risk tipping the economy into a recession.

In his words:

“You don't want to wait until inflation gets all the way down to 2% because inflation has a certain momentum. If you waited that long, you’ve probably waited too long, because inflation will be moving downward and will go well below 2%, which we don't want.”

What do you think inflation will be at one year from now? Hit reply to this email or let me know on X @philrosenn.

*At a glance:

Elsewhere:

📈 The S&P 500 clinched its longest streak of records since 2021. Traders fueled stocks to the sixth day of record gains on Wednesday, as markets seem to be betting on imminent interest rate cuts. (WSJ)

💰️Archegos Capital Management founder Bill Hwang was found guilty of criminal charges related to his firm’s collapse in 2021. The two-month trial concluded Wednesday as a jury delivered the verdict against Hwang and his co-defendant, the former CFO for Archegos. (Reuters)

💹 Japan’s stock market hit a record high overnight. The Nikkei 225 index blew past the 42,000 mark for the first time while other Asia-Pacific markets climbed. Global investors seem keen on getting interest rate cuts in the US. (CNBC)

🏦 Big bank earnings kick off Friday. JPMorgan, Citigroup, and Wells Fargo will all report quarterly earnings on tomorrow. Analysts are eyeing the unrealized losses on banks’ balance sheets, which regulators have cautioned has been unusually high for a couple years now. Lenders also continue to face stress in commercial real estate. (WSJ)

Rapid-fire:

• Costco stock climbed in after-hours trading as it announced plans to raise membership prices (CNBC)

• Apple and Microsoft dropped plans to take board roles at OpenAI (Bloomberg)

• Hubspot stock plunged 12% after reports Alphabet dropped plans to acquire the company (CNBC)

• Bank of America analysts downgraded the stocks for Mastercard and Visa to Neutral (Yahoo Finance)

• SoundHound AI stock soared double-digits after announcing its ChatGPT-integrated voice assistant is now live in several European vehicle brands (Bezinga)

• Elon Musk’s net worth grew by $67 billion during Tesla’s 10-day win streak (Business Insider)

• Investors aren’t being compensated for the risks of lending in the credit market, according to Pimco (Bloomberg)

Last thing:

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