Key insights
- The article focuses on the potential impact of the upcoming April CPI release on Fed policy. A 'hot' CPI, reflecting the full impact of the recent oil price surge, could eliminate rate cut expectations for 2026 and potentially bring rate hikes back into consideration for 2027. Even a 'mild' CPI might only indicate a delayed transmission of higher energy costs to consumer prices, suggesting the current rate forecast is unreliable. This creates a bearish outlook for equities.
The Fed held rates last week with 4 dissenting votes. First time since 1992 that four members pushed back. Their statement acknowledged that elevated inflation is driven in part by global energy prices. Translation: we see the problem and we cant fix it with rates.
95 percent of the market now prices zero rate cuts for June per CME FedWatch. The April CPI releasing May 12 will be the first data point that captures a full month of the oil shock. March CPI showed food at home up 1.9 percent year over year. That was with maybe 3 weeks of the shock priced in. April data will include the month when Brent went from 90 to 115.
The USDA 2026 food price forecast was 2.4 percent growth. The BLS baseline was 2.9 percent overall food inflation. Both were published before Hormuz closed. Before gas hit 4.46 a gallon. Before diesel went from 3.50 to 5.
If April CPI comes in hot: no cuts in 2026, possibly hikes back on the table for 2027. If it comes in mild: it just means the oil to shelf transmission lag hasnt caught up yet because diesel to checkout counter takes 4 to 8 weeks.
Either way the rate forecast everyone built their models on is dead. The question isnt whether April CPI surprises. Its how much.