Rates as of 0500 GMT

Market Recap

Rising inflation and expectations of more hawkish central bank response were the two themes moving the market yesterday.

First, the US consumer price index CPI for June was terrible! At 9.1 yearonyear it was higher than any of the 50 or so economists polled by Bloomberg thought possible forecast range 8.18.9, median 8.8. The monthonmonth rise of 1.3 was higher than the yearonyear rise less than two years ago November 2020 1.2 yoy. Pretty bad! And while the core rate of inflation slowed slightly on a yearonyear basis it accelerated on a monthonmonth basis, indicating that the main issue isnt just higher oil prices inflation is spreading to other goods as well. Services are contributing more and more to the rise in inflation. Thats probably due to the tight labor market, which the Fed is going to be aiming at.

Before the figure came out, the market thought a 75 bps rate hike was a nearcertainty at this months meeting of the ratesetting Federal Open Market Committee. The market quickly flipped to forecasting a 100 bps hike for the July 27th meeting.

And a 75 bps hike in September on top of the 100 bps hike! If you notice the blue bars, before the CPI came out the market was forecasting a 75 bps hike in July followed by a 25 bps hike in September. So its now assuming 25 bps more in July and 50 bps more in September 75 bps more nearterm tightening than before the CPI came out.

But that wasnt the big news, in my view. The more…