For traders and investors (and yes, those are two distinct classes of market participants), the biggest takeaway from this week’s key inflation data out of the US was the removal of the uber-hawkish monetary policy tail risk.

In simple terms, relatively benign reads on producer prices and core consumer prices allayed (overblown) fears of a return to rate hikes, and put two rate cuts back on the table as the most likely 2025 outcome.

Post-CPI, the assumption is that even if the US economy continues to outperform, price pressures won’t force the Fed into a complete about-face, a notion Chris “Don’t Worry About The Tariffs” Waller appeared to underscore on Thursday.

“The inflation data we got yesterday was very good,” Waller said, in remarks to CNBC, adding that “if we continue getting numbers like this, it’s reasonable to think rate cuts could happen in the first half of the year.”

Waller went further, saying March isn’t off the table for the next cut. It’s possible, he went on, that the Fed could cut as many as four times this year. (Cue your best Fed Chair audition jokes.)

The figure below, from Nomura, gives you a sense of how rates are thinking about (and pricing) the macro. Note that “no landing” (synonymous with no Fed cuts this year, or even a hike) was priced at near even odds prior to the December inflation report. Those odds came off a bit following the CPI release, which boosted “soft landing” (i.e., 0-2 2025 cuts) back to a coin flip.

As the annotation, from Charlie McElligott, notes, traders remain focused on a higher rates, right-tail scenario due to macro and domestic political realities, against virtually no concern whatever for a left-tail outcome.

While it makes all kinds of sense to worry more about a hyper-hawkish Fed in a macro overheat scenario than a so-called “sudden stop” recession outcome, the almost complete lack of attention paid to recession risk is perhaps a red flag, particularly in the context of “this time’s never different” warnings vis-à-vis aggressive Fed hiking cycles which “always break something.”

As you can see from the Nomura figure, no one expects a US recession this year, and certainly not a deep one. SOFR-implied hard landing odds (proxied by market pricing for aggressive Fed cuts) are virtually non-existent.

That sort of one-sided groupthink’s often a contrarian indicator. As ING’s James Knightley remarked earlier this week, “the near 10% jump in the trade-weighted dollar since September and the surge in Treasury yields will be headwinds to growth.”

He continued: “Mortgage rates back above 7% and credit card borrowing costs close to all-time highs will help dampen inflation pressures too,” which “should give the Fed greater scope to respond with lower rates in the second half of 2025.”

The concern in some (very lonely) corners is that a twice-fooled Fed will prove reluctant to go big again in the presence of a downturn, having arguably committed a policy error with September’s outsized first cut. Of course, in a recession, this Fed would have a very loud US president threatening unspecified consequences in the event of an insufficiently dovish policy response.