The Fed Will Not Miss This Trend We Found in the PPI Data

* While June CPI boosted rate-cut expectations, June PPI pushes them back.

* The trend in year-over-year core CPI data means the Fed will stick to wanting even more good data before implementing cuts.

* Tune in to what Fed Chair Powell says on Monday.

As earnings season gets underway with nice results from JPMorgan Chase JPM that confirm we’re on the right track with Morgan Stanley MS and Bank of America BAC, the June PPI report has the potential to throw some cold water on the market's excitement about Fed rate-cut timing. As we can see in the table below, not only did the June PPI figures surprise to the upside, but the data for May was revised higher as well.

While yesterday’s June CPI report showed more of the "good data" the Fed is looking for, today's June PPI doesn't fall into that camp. If anything, it will result in the Fed wanting even more data to confirm that a repeat of last fall's inflation head fake isn't in the cards.

The probability of a smooth, declining line to levels where the Fed will feel comfortable enough to start a rate-cutting cycle has always been somewhat low. Data can be noisy, but even when we smooth out the year-over-year core PPI data of the last several months using a three-month moving average, the upward trend seen below isn’t going to go unnoticed by the Fed.

This will keep the Fed on the path with wanting to see more good data, and that means September rate-cut expectations will hinge on all the July, August, and September data we’ll get before the Fed’s next policy announcement on September 18.

The risk we see potentially creeping back is one where the market gets ahead of itself on the number of rate cuts for this year. All of this means we will be tuning in to see what Fed Chair Powell says when he speaks on Monday at noon ET.

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At the time of publication, TheStreet Pro Portfolio was long MS and BAC.