July CPI Report Puts Inflation Outlook Front and Center for Federal Reserve

The Federal Reserve's inflation outlook will be closely watched on Wednesday when the July consumer price index (CPI) is released. Economists expect a modest monthly gain in both headline and core prices, which could give Fed officials more time before changing interest rates.

According to Dow Jones consensus estimates, the headline CPI is expected to rise 0.1% in July, while core inflation is forecast to increase by 0.2%. This would bring annual rates to 3.4% for headline inflation and 2.5% for core inflation, both slightly below June's levels.

Bank of America expects three rate hikes in the coming months, warning that monthly inflation readings above 0.2% could force a September increase. However, some economists believe that softer data may shift market expectations, with CME's FedWatch gauge indicating only a 50-50 chance of a hike at the September meeting.