Inflation data raises conviction that July will be the final hike – ABN Amro

The disinflation trend continued in June. While this will not derail a July Fed hike, it increases ABN Amro’s conviction that this will be the final rate rise.

June disinflation will not derail a July Fed hike

While the Fed will welcome further disinflationary progress, the June CPI report is unlikely to prevent the FOMC from hiking by another 25bp when it meets on 24-25 July, given the stickiness in labour-intensive services inflation and the broader resilience in other macro indicators in the US. 

However, the report gives us greater conviction that July will be the last hike of the current cycle, with a September hike looking unlikely assuming current data trends persist. Our base case continues to be for the Fed to start cutting rates next March. Still, we continue to see a risk that stickier services inflation keeps broader price growth above the Fed’s target in the medium term, with the risk therefore tilted towards rates staying restrictive for longer.