Preview: July CPI data will be released tonight, and could directly determine whether the Federal Reserve will pull the trigger on a September interest rate hike.

The U.S. Bureau of Labor Statistics (BLS) will release July CPI data at 8:30 PM Beijing Time tonight. The Dow Jones consensus forecast projects a 0.1% month-over-month rise in headline CPI, a 0.2% month-over-month increase in core CPI, and year-over-year gains of 3.4% and 2.5% respectively. Both figures are down 0.1 percentage points from June, yet remain well above the Federal Reserve’s 2% inflation target. Currently, traders are pricing in roughly a 50% chance of a September rate hike, meaning tonight’s data will directly tip the balance. RSM chief economist Joseph Brusuelas noted that if the data meets expectations, two consecutive months of moderate inflation readings will give the FOMC more time to assess, adding: “The committee will remain on hold for the rest of this year.” In June, headline CPI fell 0.4% month-over-month while core CPI was flat, driven by lower energy prices and moderating housing costs. If July’s data beats forecasts, the landscape will shift quickly. Bank of America forecasts that if the Fed’s key inflation gauge averages a 0.25% monthly rise over the next two months, a September rate hike is almost guaranteed; if the average is below 0.2%, a hike may be delayed; if it lands between 0.2% and 0.25%, the September decision will be a toss-up. At the July FOMC meeting, three members voted for an immediate 25 basis point rate hike, and Governor Cook recently said he would view a rate hike as necessary if inflation data does not align. Markets also assign a higher probability to rate hikes in October or December. The final outcome hinges on the policy stance of Waller – whether he is truly willing to pull the trigger on a hike, or if his dovish remarks at the July press conference better reflect his policy views.