An Inflation Test Looms Over the Economy and the Election

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Another inflation surprise? Wall Street is increasingly divided over whether the Fed will cut interest rates by Election Day. New inflation data out this week will go a long way toward settling that question, as polls show that President Biden is struggling to convince voters that he’s done a good job on the economy. It’s a big week for economic data with mixed signals on inflation. A first-quarter uptick in inflation has forced the Fed to keep borrowing costs at a 23-year high. Economists see a slight improvement, forecasting that April’s Consumer Price Index report on Wednesday will show that inflation moderated slightly last month. Such good news would follow a tamer than expected May 3 jobs report, which saw wage growth easing. (Economists will also be watching Tuesday’s Producer Price Index and retail sales data on Wednesday.) What will it take for the Fed to start cutting rates? The central bank “will need to see at least three benign core inflation prints, perhaps even four, before easing policy,” Sarah House, senior economist at Wells Fargo, wrote in a research note last week. That makes the C.P.I. data crucial, she added, as “time is running out on the clock for even a late summer rate cut.”