Friday’s Inflation Report: Three Outcomes Investors Should Prepare For

This Friday’s inflation (CPI) report could change the Fed’s September decision. Here’s what I’ll be watching.

On today’s live “Trends & Profits” webcast, I spent some time discussing this Friday’s CPI report, which could tip the Fed toward a September rate hike or give policymakers room to wait.

The futures market is currently pricing in a 60% chance of a 25 basis point rate hike at next week’s FOMC meeting.

You can watch my more in-depth commentary in the video above.

Right now, economists expect a 0.4% monthly increase in headline inflation and 0.2% in core prices in this Friday’s report.

I’m watching three possibilities.

Cool inflation: If the reading comes in below current estimates it could lower hike expectations and support long-term bonds, precious metals, real estate and growth stocks. But one cooler report would not erase the inflation risk from rising oil.

Mixed inflation: A hotter than expected headline figure with moderate core inflation would suggest energy is driving the increase. That leaves the Fed with a difficult choice, especially if higher fuel costs begin spreading through the economy. But it would likely move the odds of a September rate hike closer to 50-50.

Hot inflation: Strength in both readings, particularly services, would substantially strengthen the case for a hike.

We don’t need to guess Friday’s number to prepare for it.

In the accompanying video, I walk through each scenario and what it could mean for investors.

Members can watch our full one-hour webcast here.

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