Assuming this morning’s inflation data means a 25 basis point Fed rate hike is a sure thing at next week’s meeting, wouldn’t that mean that another rate hike at the Fed’s subsequent meeting on October 28?
Given the continued surge in energy prices since the August CPI data was collected, it’s hard to imagine that there will be any improvement in the inflation numbers prior to that October meeting.
If the reasoning of Fed Chair Kevin Warsh and the central bank hawks remains consistent, that would surely point to another round of tightening.
Indeed, that’s where the action has been in fixed income on Friday, with October rate hike odds jumping to 42% from just 27% one day ago, per CME FedWatch.
The two-year Treasury yield Friday afternoon has soared a full eight basis points to 4.63%, its highest level in more than two years.
Stocks are fine with it all, the Nasdaq, S&P 500, and DJIA all higher by more than 1%. Higher earlier, bitcoin has shed its gains, now trading at $77,0000, flat over the past 24 hours.
“We do not view the CPI report as particularly informative about the underlying inflation trend,” wrote the team at Bank of America on Friday.
As noted by others, BofA said a curious rise in cell phone service prices was likely behind the surprising gain in the core rate. Providing some color, the team said that the increase was likely due to AT&T’s retirement of some unlimited plans and higher administrative fees — both of which should be one-offs.
Two other volatile categories — airfares and lodging away from home — also showed outsized gains, said BofA.
“These effects should prove temporary and largely unwind over coming months.”
Inflation has clearly decelerated over the past three months, said Kevin Hassett, the White House’s chief economic advisor, following this morning’s CPI data.
Asked how President Trump might react to a Fed hike next week, Hassett in a TV appearance, said, “The president will have an opinion about it, I’m sure … He believes there’s plenty of room for interest rates to go down, and he voices that opinion while respecting the independence of the Fed.”
Source
This article is syndicated for educational reading. For the latest updates, visit the original publisher.
Read on coindesk.com
