CPI Needs Only To Meet Sufficient-Concern Test For Big Fed Hike

CPI Needs Only To Meet Sufficient-Concern Test For Big Fed Hike

By Ven Ram, Bloomberg markets live commentator and reporter

Treasuries seem optimistic about the US inflation data for August, though we will need a far softer-than-forecast print for the Fed to turn its back on a jumbo hike next week (which is not necessary since it is 90% priced in).

Economists almost universally expect the annual headline number to come in softer than in July, with the median forecast at 8.1%. A number around there or even something much lower, say, 7.5% is unlikely to persuade the Fed to tighten less.

From the Fed’s perspective, the imperatives are clear: get rates into neutral territory at the earliest available opportunity, and a 75-bp hike will get us into that zip code before any cracks in the economy start showing. And why fritter away the opportunity when the market is already primed for it, with overnight indexed swaps seeing more than a 90% chance of a bigger hike?

St. Louis Fed President James Bullard, an influential voice, has said repeatedly that it would make sense to front-load pretty much all the Fed’s work this year.

It may be a different story if the print comes in way softer, but even the most optimistic estimate in the Bloomberg survey is for a reading of 7.9%.

Tyler Durden
Tue, 09/13/2022 – 08:10

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