The next inflation reports will be key to understand wether the Fed can actually lower rates or not. In the chart below, we can see what will happen to annual CPI (orange line at the top of the chart) if the monthly core PCE report remains constant at a 0.31% which is the median gain when the Fed started hiking on March 2022. We could see a spike back to almost 4% in inflation which may even trigger a hike! That’s probably why we’re witnessing a correction in the equity market for the past month, and why Treasury bonds yields are on its way back to 5%. Next we need to see how the Fed changes its message to the markets, and the timing of it. All eyes on the next CPI report on May 15th.
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Chart source: Bianco Research
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