Today’s CPI report could decide whether Friday’s big market move had it right. Last week’s surprisingly weak jobs report changed the Fed conversation pretty quickly. The U.S. lost 23,000 jobs in July, Treasury yields fell, stocks rallied and traders reduced their expectations for another rate hike. Now we get the other half of the picture: inflation. At 8:30 AM ET today, the U.S. releases its CPI data for July, with economists expecting headline inflation around 3.4% year over year and core inflation around 2.5%. A cooler-than-expected number would fit nicely with what the market has already started pricing in, a hot number would make things much more complicated. The Fed could find itself looking at a slowing labor market while inflation remains stubbornly high, meaning raising rates risks putting even more pressure on employment, while leaving rates unchanged risks allowing inflation to stick around. That’s why today’s number matters beyond whether CPI comes in at 3.3%, 3.4% or 3.5%. We’re starting to get a clearer picture of the two things the Fed cares about most: Inflation and employment. Jobs already surprised us. Now we find out what inflation has to say. 🍿