Tuesday's June CPI data and Fed Chair Warsh's semiannual testimony could redraw the path for the dollar and risk assets, with the Fed's 2% target in focus.
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Tuesday's June CPI print and Federal Reserve Chairman Kevin Warsh's semiannual testimony arrive back-to-back this week, giving markets two catalysts that could reset expectations for the path of interest rates.
Economists expect headline CPI to rise 0.1% month-over-month, down from 0.5% in May. The year-over-year rate is forecast to slow to 3.8% from 4.2%. Core CPI, excluding food and energy, is seen rising 0.2% month-over-month, with the annual rate easing to 2.8% from 2.9%.
Both measures remain above the Fed's 2% target. Headline CPI has not run below 2% since March 2021. Core CPI has stayed above 2% since April 2021.
A soft reading would reinforce the case for the Fed to hold rates steady and eventually ease. That scenario would weigh on the dollar and support equities and bonds. A hot print would strengthen the argument for a restrictive stance, perhaps reviving talk of a rate hike, lifting Treasury yields and the dollar while pressuring risk assets.
The CPI report lands at 8:30 a.m. ET Tuesday. Two hours later, Warsh appears before the House Financial Services Committee. He testifies before the Senate Banking Committee on Wednesday.
The forex market analysis will be closely watched for the dollar's reaction to the CPI and testimony.
The Fed's report to Congress, released Friday, showed an economy slowing at the household level. AI investment and productivity gains continue to support the broader economy. The Fed trimmed its 2026 growth forecast to 2.2% from 2.4% and raised its inflation forecasts: 3.6% for headline CPI, 3.3% for core CPI. The unemployment rate projection fell to 4.3%.
The report reiterated the Fed's commitment to 'deliver price stability,' leaving the door open to additional tightening if inflation persists.
Warsh has been reshaping Fed communication. At the ECB Forum in Sintra, he said the era of forward guidance is ending. Central banks became too reliant on signaling future policy, he argued, often locking themselves into decisions that no longer fit evolving conditions. He wants a return to 'first principles': independent decision-making and fewer promises about future policy. He joked that anyone expecting him to reveal the next move would 'fail.'
Despite ending forward guidance, Warsh has been clear on the 2% inflation target. He said anyone expecting a higher target 'would be disappointed.' He also said policy decisions will remain independent of political influence.
The real market risk may come during the Q&A sessions. Lawmakers often draw unscripted responses. With fresh CPI data in hand, traders will parse every word for shifts in tone.
The Bank of Canada meets Wednesday. Producer inflation data follows Thursday. The CPI report and Warsh's testimony come first.
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