“Markets and forecasters are now using two decimal points on the inflation data to decide if it’s too hot or not,” Morgan Stanley’s Mike Wilson remarked, somewhat dryly, in a Monday note.

I don’t know which “forecasters” Mike’s referring to, and I’m anyway (and proudly) no forecaster, but I use four decimal points when I assess the relative temperature of the incoming inflation prints.

I’m just kidding. Not really, though. I do report the US inflation readings out to four decimals. In a sign of the times, readers infallibly express appreciation for the attention to detail. That level of precision, apparently, is both desirable and indispensable in the current environment, particularly when it comes to the MoM “supercore” prints.

For at least the second time this year, Wilson described consensus as perilously clustered — “increasingly concentrated,” as he put it, both in terms of the macro and the micro. That, in turn, opens the door to “dramatic” price action when there’s a surprise.

“There’s perhaps nowhere where this is more clear than with monetary policy expectations,” he went on. “In the past six months, the market has gone from pricing in two 25bps cuts in 2024 to seven cuts to just slightly more than one, and this has all occurred with limited change in the hard data around inflation and growth.”

The figure above underscores the point. For all the hand-wringing, not a lot’s actually changed when it comes to the (dis)inflation trajectory. Certainly not enough, a casual observer might argue, to warrant the roundtrip in rate-cut pricing.

You could insist that’s an exercise in question-begging. That is: Expectations for rate cuts were predicated on disinflation progress and there’s been no such progress, hence the swing from six (or more) cuts priced in January to fewer than two today. Indeed, the chart’s pretty clear about that. Rate cut premium increased steadily amid a series of demonstrable downshifts for core inflation, and when those downshifts became less pronounced, traders trimmed rate-cut odds.

Although I’d generally agree with that assessment, I also think it beggars belief to suggest traders were so confident in the disinflation trajectory in January that half a dozen cuts made complete sense, whereas now, less than four months later, the same analytical exercise yields a forecast of just one cut.

As the chart header suggests, the more plausible interpretation is that this is just a silly parlor game where gamblers wager not on the evolution of the data, but rather on how a panel of technocrats is likely to react to that data — right down to the second, third and fourth decimal point.