Inflation Reports Set to Reshape Fed Rate Trajectory Amid Record-High Markets

This week's inflation reports are crucial for market movements and could influence the Fed's rate trajectory. The S&P 500 is at record highs, and the 10-year yield stands at 4.675%. Three Fed governors have already dissented in favor of a rate hike at the July meeting, with markets pricing a 44% chance of an increase by September.

The key inflation reports are the CPI (Consumer Price Index) on Wednesday at 8:30 AM EDT and PPI (Producer Price Index) on Thursday. The July CPI report will feature four critical readings: Headline CPI (YoY), Headline CPI (MoM), Core CPI (YoY), and Core CPI (MoM).

A jump in the core MoM figure from 0.0% to 0.2% is already expected, but a print above 0.3% would signal reaccelerating inflation inside the Fed's preferred measurement, potentially spiking rate-hike odds.

The headline MoM is also telling, with energy prices on the rise. If the previous -0.4% decline reverses, and given that oil is already up 2.15% to $79.86, the headline could surprise to the upside.