Hitting the Brakes

Last week, the market expected Consumer Price Index (CPI) headline inflation to come in at 8.1%, but instead, it came in at 8.3%. This is still lower than the 8.5% from the month prior, but still higher than anticipated—which took markets by surprise. The bottom line is that inflation is not coming down as fast as the Federal Reserve would like. As a result, we can expect more rate hikes, and possibly higher interest rates for longer. The consensus was expecting a rate increase of 75 basis points at this week’s FOMC meeting. But given last week’s CPI data, financial markets are now pricing in a hike as high as 100 basis points—a full percentage point. This would be a significant development, and a strong indication that the Fed is poised to step even harder on the brakes going forward.

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