Can this event help you beat the Fed?

US Core Consumer Price Index (CPI) YoY (March) on Wednesday, April 11th, 2018 at 12:30 GMT.

The weakness in US equity has coincided with a spike in core CPI (Consumer Price Index) inflation over the last 3 months.

Whilst some analysts see inflation slowing down following a cooling US economy in the first quarter of 2018, the consensus sees the annualised US Core Consumer Price Index (CPI) raising from 1.8% to 2.0% in March.

Given that estimates are correct, will this lead the Fed to tighten its monetary policy at a more sustained pace than anticipated?

Market experts are divided in 2 groups:

• Bullish factors for the USD
  1. A stronger than expected inflation rate may lead the Fed to raise rates more than expected.
  2. The US economy is still resilient and recorded a healthy cooling in Q1 2018.
• Bearish factors for the USD
  1. Inflation has remained stable over the past 3 months and 3 Fed hikes are already priced.
  2. The risk of a global trade war is still present.

What is the Core CPI?

The Core Consumer Price Index (CPI) measures the changes in the price of goods and services, excluding food and energy.

The CPI measures price change from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation.

The Federal Reserve looks at the Core CPI to decide whether they should change Fed Funds rate or not.

By excluding volatile energy and food prices, the Fed can get have a better idea if the rising prices of goods and services are caused by core inflation or by the volatile energy and food prices.

A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.