CPI: Not the most welcome outcome
Recent inflation reports have exceeded expectations, potentially offsetting the cautious tone from Federal Reserve officials. However, the focus seems to be on the duration of current interest rates rather than their height. Thus, a slightly higher inflation rate may not significantly disrupt the market.
The "Fed rhetoric shift" is becoming evident, with Christopher Waller's comments suggesting that the rise in yields could substitute for a rate hike. This indicates a possible shift towards a more dovish monetary policy.
The future hinges on economic indicators. Unless inflation rises unexpectedly or labor market imbalances lead to a wage-price spiral, the Fed may maintain a less hawkish stance. This could boost demand for longer-duration assets and foster a "Santa rally".
The market's reaction to today's CPI print is uncertain, but it may not be what investors were hoping for.