US inflation is unlikely to soften this week or over the coming months to enable the Federal Reserve to cut interest rates before December, Bank of America has predicted.
One of the most closely watched economic data releases this week will be the consumer price index (CPI) for May, which will be published on Wednesday ahead of the Fed decision that evening.
Headline CPI is expected by BoA to remain at 3.4% year-on-year, but to rise just 0.1% month-on-month owing to a decline in gasoline prices, down from a 0.3% rise in April.
If excluding fuel, food and other more volatile prices, core CPI is predicted to print 0.3% month-on-month, the same as April, leaving the year-on-year rate unchanged at 3.6%.
If the CPI report in line with these forecasts, it would likely keep the Fed on track for one cut this year, BoA believes.
"If the report is in line with our expectations, we would maintain our expectation for the Fed to cut one time this year in December.
"We feel it is unlikely that inflation data will soften enough over the coming months to enable the Fed to cut before December.
"The main risk to earlier cuts is a faster slowdown in employment growth than we project or a sharper deceleration in shelter inflation."