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Mar 14, 2024 • 12 Min Read

Market Shrugs at Hot CPI

The latest Consumer Price Index (CPI) data indicated a hotter inflationary environment than forecasted for February. Despite the surprise in the numbers, market participants appeared largely unmoved, suggesting that the potential impact had already been factored into their calculations prior to the release.

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This resilience reflects a broader sentiment that a rates-driven selloff, in response to the CPI figures, is not a significant near-term risk. This interpretation is further supported by the modest adjustment in the Fed funds futures market, which saw an increase of merely 10 basis points in the anticipated fed funds rate for December.

The prevailing market demeanor implies a notable shift in expectations, with investors increasingly inclined to trust the Federal Reserve's guidance. As we have noted in prior notes, the burden of proof, it seems, has now shifted towards the hawks to demonstrate a resurgence in inflation, rather than on the doves to prove its decline.

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Real Near-Term Risk: Tax Season

Below we see that the Fed Liquidity metric that we like to track for domestic liquidity conditions has remained high, bolstered by a 20% YTD drawdown in the Reverse Repurchase Agreement (RRP), which enhances the reserves within the ban...

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