June CPI Report Comes In Hot, Fed Fund Futures Retreat After Initial Shock

The June CPI print came in at 9.1% on Wednesday on expectations of 8.8%. This was higher than expectations and the report did not give Fed officials any reprieve from persistently high price pressures. Shelter was problematic and so was gasoline. Hotels benefitting from revenge spending contributed as well. The initial market reaction was likely somewhat extreme in Fed Funds Futures markets which priced in a 100% chance of a 100-bps point hike. This level would be the largest single hike since Paul Volcker’s tenure. For their part, Fed officials seemed to be more measured in their reaction to this CPI report than the last one. Since the initial shock, the futures markets have retreated from 100% certainty that a larger hike was coming and now 75 bps is the most likely outcome for the Fed’s July meeting.

Fed Governor Christopher Waller had somewhat subdued comments given the print. In his comments, he mentioned he thought the market was “getting ahead of itself” in pricing in a 100-bps hike.  He said he supported a 75-bps hike but could be swayed by data in retail and housing if it surprised in the wrong direction to consider 100 bps. Surprisingly, St. Louis Fed President Bullard, often the leading hawk, said he believed 75 bps was still appropriate. However, you ...

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