In a mid-week note, BMO’s Ian Lyngen and Vail Hartman said Thursday’s US CPI report would likely be decisive.
The inflation update, they said, held “the needed weight to trigger a sharp repricing in US rates.”
Although the figures wouldn’t “offer a definitive answer to the question around the timing of rate cuts,” the release would nevertheless “weigh heavily in the debate [around] whether the FOMC is truly getting back on a disinflationary track that is consistent with a rate cut in September,” they went on.
Fast forward to Thursday and the CPI release did in fact beget a fairly dramatic repricing across the US rates complex. Consistent with the read-through of another downside inflation surprise for Fed policy, the move was most pronounced at the front-end.
Two-year US yields dropped 14bps through midday, on track for the biggest rally of 2024. Further out, 10s rallied 10bps, down to ~4.18%, near the lowest since early March. The curve bull steepened. Again: The front-end’s anticipating Fed cuts.
The opinion across desks was unanimous: The Fed’s going to cut in September.
“This morning’s CPI report was arguably the most encouraging one the FOMC has received since it began its inflation fight nearly two and a half years ago,” Wells Fargo’s Sarah House and Michael Pugliese said. “On balance, the economic data are the most supportive of a rate cut that they have been all year.”
Wells — and pretty much everyone else — expects Jerome Powell to move in September and then again in December, when the Capitol building will be spray painted gold and America’s first king will be in the process of instituting a nationwide hat mandate, requiring red trucker caps be worn in all federal, state and local government buildings. (I’m just joking. The hats will only be required in Congress.)
Market pricing for the Fed trajectory shifted pretty aggressively in the wake of the CPI release. Traders, who’d already fully priced two cuts, now see about even odds of a third.
The June dot plot’s now so stale as to be virtually meaningless.
The three-month pace of core price growth in the US is basically mandate-consistent, at 2.1% annualized.
That’s the lowest since March of 2021, when Joe Biden’s approval rating was 54%.
Oh I think you had it right at all government employees wearing Trump trucker hats. Think of how much he could make off of that required uniform item? But why stop there? New military uniforms for all branches from Trump, all navy ships required to be painted with the gold Trump logo and thus pay him royalties, and every single white house communication only going through Truth social thus requiring anyone who wants to hear it to sign up for his social network.
So much money to be made as King of the US!