The July Consumer Price Index lands Wednesday at 8:30 a.m. ET, and traders are hoping a soft number can reignite momentum in high-beta names like Palantir Technologies Inc. (NASDAQ:PLTR) and Tesla Inc. (NASDAQ:TSLA).
Cato Institute economist Jai Kedia doubts it. “It is unlikely that any meaningful change to those stocks would occur from a singular inflation report,” he told Benzinga.
“Markets are already baking in a worse inflation report than June, so only a serious shock in that report would have a sustained stock market effect,” Kedia said.
A Small CPI Miss May Not Be Enough
High-beta growth stocks tend to benefit when inflation cools and expectations for higher interest rates fade. A hotter-than-expected CPI can quickly turn that trade the other way.
Economists expect headline CPI to rise 0.1% month over month after June’s 0.4% drop, with the annual rate easing to 3.4% from 3.5%. Kalshi traders see limited upside risk, pricing just an 18% chance that annual CPI comes in above 3.4%.
Kedia Expects Inflation to Come in Worse Than June
“A one-off jobs or inflation report won’t (or at least shouldn’t) be a determining factor in rate decisions,” Kedia said.
Friday’s report, which showed the economy shed 23,000 jobs, pushed markets toward a September pause. Kedia counters that the unemployment rate has barely budged and actually fell to 4.1% last month.
That leaves inflation as the key input. Kedia expects July’s figure to come in worse than June, which he said was flattered by the since-terminated memorandum of understanding with Iran. “The odds of a rate hike will correspondingly increase after the CPI report,” he said.
Polymarket prices a September hold at 59% and a quarter-point hike at 39%. A hike was priced at 60% before the jobs report.
Trump Wants Lower Rates, but Kedia Says White House Policy Is Keeping Hikes Alive
President Donald Trump has repeatedly pressured the Fed to cut. “Hopefully, the President’s pressure has no effect at all on Fed policy,” Kedia said, arguing “the administration’s policies are the primary reason rate hikes are even on the table,” citing tariffs, the war in Iran and the supply shocks that come with it.
Kedia’s argument, in other words, is that the White House wants cheaper money while its own policies are keeping hikes in play.
July CPI May Already Be Looking Backward
Brent crude has climbed back toward $90 a barrel as U.S.-Iran negotiations remain stalled and uncertainty hangs over reopening the Strait of Hormuz. Kedia says July may still carry lagging ceasefire effects, but “it should still be a bad price report overall.”
“This is why it’s best to look at 3-month moving averages of inflation rather than focusing on singular inflation reports,” he added.
What Traders Should Watch Wednesday
Fed researchers found this year that rate expectations reacted far more sharply to hotter-than-expected CPI prints than to cooler ones.
A cooler number could spark a pop in high-beta names. But in Kedia’s view, it would take a "serious shock" for that move to stick.
Image: Shutterstock
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