The release of the May 2025 Consumer Price Index (CPI) is shaping up to be a pivotal moment for global markets. With Wall Street closely watching inflation dynamics to gauge the Federal Reserve’s next steps, today’s data has the potential to trigger significant volatility across equities, bonds, and rate expectations. Here’s everything investors need to know ahead of the release — including major bank forecasts and JPMorgan’s scenario analysis.

CPI Forecast Consensus: Most Banks Expect 2.4% Annual Inflation

The broad consensus among major investment banks is that headline CPI for May will come in at 2.4% year-over-year — down slightly from previous months, suggesting continued disinflation. Notable institutions including JPMorgan, Citigroup, Barclays, UBS, BNP Paribas, Bank of America, and Wells Fargo are aligned around this figure.

On the other hand, Goldman Sachs, HSBC, Morgan Stanley, and Investing.com are forecasting a slightly higher 2.5% inflation rate, indicating a slower cooling process.

Core CPI Outlook: JPMorgan Scenarios and Market Sensitivity

The focal point for market reaction will be the Core CPI (excluding food and energy), especially on a month-over-month (MoM) basis. JPMorgan outlined multiple scenarios with corresponding S&P 500 implications:

1. Hot Tail Event – Core CPI MoM > 0.40% (5% probability)
In this scenario, the S&P 500 could drop 2%–3%. Such a surprise to the upside, especially if both Core Goods and Core Services print hotter than expected, would challenge the Fed’s dovish narrative and imply stagflation risks. Yields would likely surge, and rate cuts would be priced out entirely for 2025.

2. Moderately Hot – Core CPI between 0.35%–0.40% (25% probability)
Expected market reaction: S&P 500 declines 1.25%–1.75%. JPMorgan suggests Core Services, especially shelter-related components like Owners’ Equivalent Rent (OER), would remain sticky under this print. The bond market would likely sell off, and future cuts could be delayed until late 2025 or beyond.

3. Base Case – Core CPI between 0.30%–0.35% (35% probability)
This is considered the base case. S&P 500 could move between −0.25% to +0.75%, depending on the precise level. A reading on the lower end might support equities, while the higher end could still weigh on sentiment.

4. Mild Disinflation – Core CPI between 0.25%–0.30% (30% probability)
Positive reaction expected: S&P 500 gains 1%–1.5%. Given recent softer CPI prints across other G7 economies, JPMorgan sees a slightly higher probability for this outcome. It would increase the likelihood of two rate cuts in 2025, potentially starting as early as September.

5. Dovish Tail Event – Core CPI < 0.25% (5% probability)
In this rare but impactful scenario, S&P 500 could rally 2%–2.5%. A materially soft print like this — similar to recent surprises in the UK and EU — would lead markets to price in multiple rate cuts (potentially two 25bp cuts) and trigger a bond rally with bull steepening of the yield curve.

Why This CPI Report Matters More Than Ever

Inflation remains the key determinant in the Federal Reserve’s monetary policy calculus. While headline inflation has cooled, Core inflation — particularly in services — remains stubbornly elevated. This has left markets divided over the likelihood and timing of rate cuts.

Today’s data could therefore shift expectations meaningfully. Even a 0.05% deviation from forecasts could reshape the rate outlook, drive bond yields, and fuel sharp moves in risk assets.

Equities: Brace for Two-Way Volatility

Based on JPMorgan’s framework, markets are poised for binary outcomes. A hotter-than-expected print (above 0.40%) or a major downside surprise (below 0.25%) could spark moves of 2% or more in the S&P 500. Outcomes within the 0.30%–0.35% range are partially priced in, suggesting limited upside or downside in that corridor.

Bottom Line: CPI Will Set the Tone for the Summer

The May CPI report is not just another economic print — it’s a directional signal for U.S. monetary policy and broader market momentum heading into the second half of the year. With a notable disconnect between equity markets and bond market pricing, any inflation surprise could unleash aggressive repricing across asset classes.

If the report confirms disinflation, expect risk-on sentiment to prevail. But if inflation remains sticky or accelerates, markets may face a reality check — and rate cuts could be off the table until 2026.