Rate-Hike Odds Soar Despite Lowest Core Consumer Price Inflation Since 2021

Following fuel-driven jump in Producer Prices, consensus was for a concomitant jump MoM in Consumer prices this morning, after last month’s decline as energy prices have rebounded (though we warned that amid all the interventionist-y chatter, nothing would surprise us less than ‘cool’ print to offset the PPI scare).

And analysts were right with headline CPI rising 0.4% MoM (exactly as expected) – biggest MoM since May – but prices rose 3.5% YoY (in line with expectations and flat to the prir month)…

Core Services accelerated…

…BUT Fuel prices dominated the rise in headline CPI…

Just like we saw yesterday with PPI, the rebound in crude (and refined product) prices snapped CPI’s Energy component notably higher…

 Core CPI rose 0.3% (0.29% rounded up) MoM (hotter than the 0.2% exp) but on a YoY basis it decline from 2.5% to 2.4% – the lowest since March 2021…

Understandably, a lower CPI print is better for markets, and JPM’s market scenario analysis affirms that:

• Core MoM prints above 0.30%. SPX declines 1.5% – 2.5%; Odds 10.0%

• Core MoM prints between 0.25% – 0.30%. SPX declines 25bp – 1%, Odds 25.0%

• Core MoM prints between 0.20% – 0.25%. SPX gains 50bp – 1.25%, Odds 30.0%

• Core MoM prints between 0.15% – 0.20%. SPX gains 1% – 1.5%, Odds 25.0%

• Core MoM prints below 0.15%. SPX gains 1.5% – 2%, Odds 10.0%

For now, rate-hike odds soared to over 90%, almost certain pricing for a 25bps move higher by Warsh and his pals next week…

Finally, top Goldman short-term macro trader, Brian Bingham, noted that:

“The Fed is now in the most paradoxical of all positions, beholden to a single data print and potentially reactive to the rounding on the ECO screen…

Warsh told the market in his first press conference that he didn’t want to focus on the number to the right of the decimal point, but now it’s the number to the right of that one that will be the determinant. Waller’s speech on Thursday was surprisingly and overtly dovish, confirming our view that the Board skews heavily if not unanimously dovish relative to the regional presidents, but offered little new information beyond implicitly confirming a 30bp core CPI will merit a hike.

The market appears to be penciling the over/under at 25, but we struggle to see a meaningful rally on an in-line 20bp core print following this week’s jobs report; in a world where the meeting goes in pricing greater than 50% chance of a hike, the risk of the bond market interpreting a hold as a policy error seem far greater than the harm of hiking into above-target inflation.”

The jawboning is over… it’s shit or get off the pot time for Kevin (every new Fed head is tested early on by the markets).