We Learned More From CPI Than We Did From the Fed

CPI sparked a rally in bonds and stocks Wednesday morning that lasted until the Fed announcement and Jerome Powell's press conference.

The “dots” pushed one rate cut from this year into next. Largely expected, especially since the dots didn’t have today’s CPI print.

Powell, apparently, wasn’t as dovish as market had priced in as stocks and bonds both gave up some gains as the press conference ended.

Powell did seem to focus more on jobs than inflation (makes sense as avoiding a recession in an election year is likely high on his priority list). The media and Powell seemed as confused by Friday’s job report as we were. He seemed to talk about longer-term averages, etc. But he didn’t mention the discrepancy has been pretty consistent, the birth/death model is disproportionately large, or the massive amount of part-time vs. full-time jobs. The takeaway was jobs cooling but not problematic, but the Fed is prepared to react if job market weakens.

Not quite “mission accomplished” on the inflation front but almost. I was confused on rent increase lags (and still don’t understand why we don’t have something remotely resembling real-time, market based data, for that). Also it seems to be clear if we are high because of lags, the real inflation problems were much higher than official reports (why surveys show inflation as bigger problem than 3% would indicate).

Away from that, AI seems the big story, yet again! Nvidia NVDA and Apple AAPL up 3% and Oracle ORCL a cool 13%!

I do think bond yields can trade higher from here — 4.3% to 4.5% has been a great trading range. A shift to a focus on the deficit and the “successful” auction bounce we had on 10s makes limited sense to me. We will have auctions week after week, month after month, with no indication size of auctions will do anything but grow over time.

It would be nice to see the underperformers catch up or take leadership, but seems like the narrow leadership continues.