Fed Governor Waller’s hawkish turn is causing chain reactions across global forex markets. The previously dovish official warned against declaring victory over inflation prematurely. US core CPI remains at 3.8% annualized, well above the 2% target. The labor market remains tight with wage growth at 4.2%. Markets have repriced rate expectations significantly.

Market Implications

The key determinant of whether the Fed will hike in July is this week’s CPI data. If core CPI month-on-month exceeds 0.3%, the probability of a July hike could rise above 50%. The Middle East situation adds complexity by increasing inflation expectations while also creating downside economic risks. Investors should prepare for higher volatility around the CPI release.