The coming week is headlined by two events that have the potential to reshape expectations for Federal Reserve policy and drive volatility across the U.S. dollar, Treasury yields, equities, and precious metals.
The first—and arguably most important—will be Tuesday’s June CPI report, released at 8:30 AM ET. Inflation remains the primary focus for both the market and the Fed as investors debate whether the recent moderation in price pressures—helped in part by lower energy prices—is sustainable or merely temporary.
Economists expect headline CPI to rise 0.1% month-over-month, down from 0.5% in May. If realized, it would be the softest monthly reading since June 2025. While that would be encouraging, the Fed’s inflation target remains 2.0%, and monthly inflation running at 0.2% or higher—where it has remained since June 2025—is generally considered inconsistent with returning inflation to target over time.
As a result, the year-over-year headline CPI rate is expected to slow to 3.8% from 4.2%. Core CPI, which excludes food and energy, is forecast to rise 0.2% m/m, while the annual rate eases slightly to 2.8% from 2.9%—still comfortably above the Fed’s objective. For perspective, headline CPI has not been below 2.0% since March 2021, while core CPI has remained above 2.0% since April 2021, underscoring how persistent underlying inflation has been.
The CPI report will likely set the tone not only for Tuesday’s trading but for the remainder of the week. A softer-than-expected reading would reinforce expectations that the Fed can remain on hold and eventually move toward easing, weighing on the U.S. dollar while supporting equities and bonds. Conversely, another upside inflation surprise would strengthen the case for maintaining a restrictive policy stance—and could even revive expectations of a rate hike—lifting Treasury yields and the dollar while creating headwinds for risk assets.
Following the inflation report, attention quickly turns to Federal Reserve Chairman Kevin Warsh’s semiannual Monetary Policy testimony on Capitol Hill. Warsh will testify before the House Financial Services Committee on Tuesday at 10:00 AM ET, followed by an appearance before the Senate Banking Committee on Wednesday.
The prepared Fed Report to Congress released on Friday, portrayed an economy that is slowing at the household level but continues to be supported by AI-driven investment, improving productivity, and a resilient labor market. That backdrop gives the Fed room to remain focused on inflation. The Fed’s latest projections reinforced that message by trimming its 2026 growth forecast only modestly to 2.2% from 2.4%, while raising its inflation forecasts to 3.6% for headline CPI and 3.3% for core CPI, both up sharply from 2.7% previously. At the same time, the projected unemployment rate was lowered to 4.3%, suggesting policymakers see little deterioration in labor market conditions. Importantly, the report’s repeated commitment to “deliver price stability” leaves the door open to additional tightening should inflation prove more persistent than expected.
While the prepared remarks provide the framework, the real market risk comes during the question-and-answer sessions, where lawmakers often elicit unscripted responses that offer valuable insight into the Fed’s latest thinking on inflation, interest rates, the labor market, and the broader economy. With fresh CPI data in hand, markets will be listening for any shift in tone that could alter expectations for monetary policy.
Investors should also keep in mind that Warsh has been trying to reshape how the Fed communicates policy. During his recent appearance at the ECB Forum in Sintra, he made it clear that the era of forward guidance—where policymakers effectively pre-commit to future rate moves—is coming to an end. Instead, he has emphasized a meeting-by-meeting, data-dependent approach.
Warsh argues that, since the 2008 financial crisis, central banks have become too reliant on signaling future policy, often boxing themselves into decisions that no longer fit evolving economic conditions. Rather than telling markets where rates are headed months in advance, he wants the Fed to return to “first principles”: data dependence, independent decision-making, and fewer promises about future policy. As he joked in Sintra, anyone hoping he would reveal the Fed’s next move ahead of a meeting was “going to fail.”
Despite moving away from forward guidance, Warsh has been unwavering on one point: the Fed’s commitment to price stability. He has repeatedly stated that the Federal Reserve has no intention of raising its 2% inflation target, adding that anyone expecting a higher objective “would be disappointed.” He has also emphasized that monetary policy decisions will remain independent of political influence, reaffirming that the Federal Reserve—not elected officials—will continue to set interest rates in pursuit of its dual mandate of maximum employment and price stability.
Other key events this week
Tuesday
BOE Governor Andrew Bailey speaks before U.S. markets open and again later in the afternoon.
U.S. Producer Price Index (PPI) is released, with:
Core PPI expected at 0.3% m/m (vs. 0.4% prior)
Headline PPI expected at 0.0% m/m (vs. 1.1% prior)
Bank of Canada policy decision
Monetary Policy Report
Rate Statement
Overnight rate expected to remain unchanged at 2.25%
Governor’s press conference follows.
Chairman Warsh testifies before the Senate Banking Committee, giving markets a second opportunity to evaluate the Fed’s policy outlook.
Thursday
UK GDP (May) expected to rebound 0.1% m/m after a -0.1% decline.
U.S. Retail Sales
Headline Retail Sales expected +0.3% after +0.9%
Core Retail Sales expected -0.1% after +0.8%
Philadelphia Fed Manufacturing Index expected to improve to 12.1 from 10.3.
Weekly Initial Jobless Claims expected at 215K, unchanged from the prior week.
Friday
University of Michigan Consumer Sentiment (Preliminary) expected to improve to 51.4 from 49.5.
University of Michigan Inflation Expectations will also be closely watched for any changes in consumers’ long-term inflation outlook.
Other key events include the start of the earnings releases with the financials leading way. See Adam’s preview HERE.
Bottom line
The week begins with the market’s two biggest catalysts arriving back-to-back: Tuesday’s CPI report and Chairman Warsh’s testimony before Congress. Together, they have the potential to reshape expectations for Fed policy heading into the second half of the year. After that, attention shifts to producer inflation, the Bank of Canada decision, retail sales, and consumer sentiment, rounding out a week packed with market-moving economic and central bank events.
This article was written by fl932d6e52a19643278e0f123bca7198f5 at investinglive.com.