Reactions to the hottest US inflation print since December 1990 ran the gamut from apathetic to alarmist to derisive to sarcastic.

The White House conveyed concern, the bond market sent a number of signals, not least of which was that the belly will bear the brunt of… well, bearishness.

“The relative performance of the belly will provide the most salient indication on investors’ anticipation of the path of policy,” BMO’s Ben Jeffery and Ian Lyngen wrote, following Wednesday fireworks.

“This in turn implies that the response to the incoming economic data will be most observable via the derivative of the implications for the Fed,” they added. “Strong economic performance flowing through as a flattener, with weakness in the recovery offering a steepening impulse.”

On a simple interpretation, the narrative for the nominal curve after Wednesday is just that hot data likely gets you a bear flattener, weaker macro a bull steepener. A vicious bear steepener would be reserved for a nightmare scenario where the market gets the idea the Fed has lost control of expectations, a wage-price spiral sets in and/or supply chain bottlenecks don’t abate and inflation broadens out with no evidence to suggest rate hikes can help given the supply-side nature of the issues.

On the other hand, you could argue that if the Fed stays laser-focused on the labor market, a hawkish bent isn’t likely. If participation stays depressed, the unemployment rate could lose relevance. Colloquially, a steadily shrinking labor force means less money circulating, which isn’t exactly conducive to growth. If prices keep outstripping wages, the quits rate could stay elevated given realities associated with, for example, having to spend an outsized percentage of one’s pay on childcare. In that context, a Fed that continues to prioritize the labor market isn’t likely to hike aggressively, and the implied wage dynamics could be conducive to bear steepening.

In any event (and for what it’s worth), five-year breakevens are at records, 10-year breakevens the highest since 2012 and 30-year breakevens the highest since 2013.

You can’t discern it on the figure (above), but Wednesday’s move was 12bps.

“The highest yearly read on core consumer prices since the early 1990s leaves the Fed in the unenviable position of sticking to their new framework even as five-year breakevens reached their highest level on record while 10-year real rates dropped to a fresh record low reaching -125bps,” BMO’s Jeffery and Lyngen went on to say.

“We don’t think the [CPI] report changes the debate about ‘transitory’ in any significant way, and the test for the Fed will be what happens in the first half of 2022, but the data will increase the focus on long-term inflation expectations measures,” TD’s Jim O’Sullivan and Priya Misra wrote, adding that “the surge in COVID-impacted categories (such as travel and used cars) is unlikely to change the Fed’s narrative just yet [but] the sharp increase in rents and OER is concerning.”

That latter point speaks to something I’ve mentioned so many times I’ve lost track. The surge in property prices was destined to manifest in “official” inflation eventually (figures below).

“This is not just about lumber, or used cars, or energy, or food,” Rabobank’s Michael Every said Thursday. “Inflation is evident across a broad spectrum of goods; yes, with energy prices high, it will spread; into food, for sure; with supply-chains still strained, it will spread if demand does not fall; and in so-far-restrained services, the next big shock will be from rising rents, where demand is inelastic,” he added.

Note that the latest installment of the New York Fed’s consumer survey showed Americans expect rents to rise more than 10% in the year ahead (figure below).

That was the highest reading ever recorded in the survey.

Not everyone was — how should I put this? — gentle with the Powell Fed.

“Which of the brilliant minds at the Fed, White House or on Wall Street had a 6.2% YoY US inflation print pencilled in for October, the highest since December 1990 and, given base effects into end-year, the possibility we close 2021 close to 7%, the highest since June 1982?”, Rabo’s Every wondered. It was supposed to be a rhetorical question. He answered it: “That’s right – nobody.”

I suppose I’d note that 6.2% actually wasn’t that far from consensus, which was 5.9%. TD’s estimate was 6%. And if you asked a macro strategist on Wall Street six months ago whether 7% YoY by year-end 2021 was ludicrous or totally out of the realm of possibilities, they’d have said “no.”

Anyway, I don’t mean to split hairs. Every is obviously correct and his point is duly noted. He asked another simple question: “Did you get a 7% pay raise this year?”

For his part, JonesTrading’s Mike O’Rourke suggested Powell’s tenure should end. “As the nation battles inflation today, how can the President even consider reappointing a Fed Chair who changed the Fed’s mandate to create inflation?,” he wondered. “In his attempts to micromanage price stability, Powell created price instability and undermined three decades of stable prices.”

I suppose I’d gently suggest that if we’re looking to assign blame or otherwise identify the proximate cause (as opposed to aggravating factors), it was the pandemic which undermined three decades of stable prices by upending globalized supply chains and exposing the perils associated with the religion of JIT.