July CPI Could Outweigh Weak Jobs Data in Shaping Fed Rate Expectations

The upcoming U.S. July CPI report could have a greater impact on Federal Reserve rate expectations than last week’s weak jobs data, according to Bank of America. July nonfarm payrolls fell by 23,000, while prior-month gains were revised down by 103,000 and wage growth slowed to 3.2% year over year.

Despite the softer labor data, BofA maintained its expectation for the Fed to begin raising rates in September, arguing that inflation remains the central policy concern. Markets will therefore look to CPI for evidence of whether price pressures are easing or proving persistent.

Trader outlook: A softer CPI could strengthen expectations for a less restrictive Fed and support gold and equities, while a hotter-than-expected reading could lift Treasury yields and the dollar as markets reassess the rate path. CPI is likely to be a key volatility catalyst across major asset classes.