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The US consumer price index surprised to the upside in March and the doves are throwing in the towel.
The Fed funds futures market was pricing in 68 bps in rate cuts for 2024 at the start of the day but that’s plunged to 45 bps in the aftermath of the report. June rate cut pricing is down to just 20% from 55% before the data and July is now a toss-up. September is fully priced in for the first rate hike, but just barely.
Looking further out, US 2-year yields are up 19 bps on the day to 4.95%, indicating a higher-for-longer stance, which is what the Fed said it would do.
The next round of Fed commentary will be insightful. The doves at the FOMC have been holding out hope for a decline in inflation due to lagged housing effects and there is a good argument for that but at some point you need to see it in the data. Rates rose 0.4% m/m once again in this report and shelter makes up more than 60% of the increase in inflation in the past year.