Assessing Probability Of CPI Tipping The Fed Toward A Hike (2/2)

In our reading of 31 sell-side analysts' previews (summarized in MNI's Fed meeting preview which is here), though several noted potential for Tuesday’s CPI data in particular to tilt the balance toward a hike, Citi and TD are alone in having a core view of a 25bp raise. Below are some sell-side opinions on the impact CPI could have on the Fed decision/communications Wednesday:

• Barclays: Barclays is penciling in a skip by the FOMC in June, but “our conviction is limited”. The outcome “could easily hinge on Tuesday’s outcome for May core CPI inflation”, with a number above 0.4% M/M likely sufficient to tip the balance to a hike depending on the composition, with 0.4% itself potentially tipping the balance to a hike.
• ING: ING expects some dissent and a potentially “very close decision” with the FOMC’s June pause. A shock 0.5% M/M core CPI reading on Tuesday could be sufficient to convince enough FOMC members to vote for a hike. “That’s not our base case and we believe there will be a majority on the committee who think they have tightened policy a lot and it makes sense to wait.”
• NatWest: “A strong May CPI report … would be enough to potentially argue for one more, and perhaps the last, hike from the Fed (an argument a few current non-voting FOMC members could likely make).” NWM forecasts 0.5% M/M core.
• RBC: RBC sees a FOMC hold in June (20% subjective prob of a 25bp hike) - the bar is set high for a beat/miss in Tuesday’s CPI to alter the rate outcome. "The impact (if any) will most likely be felt in Powell’s tone at the press conference, but a beat/miss could prompt a repricing into the decision and certainly move the market’s hawkish/dovish goalposts...beat. if core CPI comes in at 0.5% m/m, our hike probability goes to 60%. If it comes in at 0.3% m/m, we go to 0%."
• Scotia: "hike or hold is probably close to a coin toss…if core CPI is hot again then it may tip the balance toward a hike...[the FOMC may] want to see CPI and will then ring up the WSJ and others in clandestine fashion like they did pretty much one year ago to the day in order to affect market pricing and mitigate the game day surprise to whatever action they choose to embrace."
• Standard Chartered: If core CPI on Tuesday comes in at 0.4-0.5% M/M driven by rents and used cars, FOMC likely OK with a hold, but if ex-autos/shelter shocks to the upside, the hawkishness of communications could increase.