US Inflation CPI Analysis: Inflation cold enough for the Fed to hold, US Dollar set to fall

It could have been lower, that is what many Americans may think about the current level of inflation, which remains above average. However, for the Federal Reserve (Fed), it means no chance of a rate hike on Wednesday. That is what markets care about.

The headline Consumer Price Index (CPI) rose by only 0.1% in May, and year over year, inflation is up 4%, down from 4.9%. These figures come into the spotlight as Core CPI – price rises excluding energy and food – came out bang on estimates. Underlying inflation is up 0.4% MoM and 5.3% YoY. 

Will this CPI report impact the Fed's dot plot? Some hawkish members may feel vindicated about their calls to continue raising rates, and they might push their projections for interest rates to rise. However, it is essential to note that there is still time until the July decision – and even more time until December. The dot plot refers to rates at the end of the year. 

Markets have reacted with a jittery response to the figures due to their high importance and the timing ahead of the Fed. The bank's "blackout period" before their meeting also angers investors. 

I expect the US Dollar to edge lower, and for Gold and stocks to rally as time passes, there is no indication of a last-minute decision to raise rates. A tweet from "Fed insider" Nick Timiraos regarding the data is unlikely to include such a hint. Under these conditions, markets will likely remain calm and wait for the dot plot and Fed Chair Jerome Powell. There is no reason to panic – at least not yet.