Daily Market Color

Busy Day Headlined by CPI and FOMC

Headline CPI Generally Meets Expectations

Today’s release of the November CPI report showed continued growth in the headline number, but a closer look at core inflation surprised to the downside.  Headline CPI Month over Month (MoM) printed at 0.4%, while the Year over Year (YoY) number came in at 2.2%, directly in line with Bloomberg estimates.  However, Ex Food and Energy numbers missed estimates by 0.1%, coming in at 0.1% MoM and 1.7% YoY.  Inflation remains a critical component of the Fed’s dual mandate, and the drop in pace of core CPI suggests the Fed will continue to take a gradual approach to normalizing monetary policy.  The 10yr swap rate rallied about 6 bps from its high immediately after the CPI announcement and ended the trading session at 2.35%, down 6 bps from the open closing near the low of the session.



FOMC Moves on Rates

The FOMC voted to raise the Fed Funds Target by 25 bps to 1.5% today at the conclusion of its December meeting.  The accompanying statement reflected confidence in the overall health of the economy.  The Fed expects a pick-up in growth in 2018 (GDP estimates upwardly revised 0.4% to 2.5%), inflation to stabilize, and the labor market to remain strong.  The FOMC Projections (dot plot) maintained a course for three rate hikes in 2018.  Both Evans and Kashkari were dovish dissenters, but neither will be a voting member in 2018.  It’s also worth noting this was Fed Chair Yellen’s last meeting. 



Market Recap

Treasury prices rose during today’s trading session rallying about 8bps on the day.  All three major stock indices were marginally higher on the day . The market was mindful of the news that the GOP Leaders were able to reach an agreement on the Tax Reform Legislation.  In related news, future Trump administration led legislation may be tougher to pass with Doug Jones, a democrat who won the special election in Alabama, joining the Senate and narrowing the GOP Majority.  Swap rates fell 4-6 bps across the curve, bringing the yield on the 10-year note near 2.344%.  In commodities, crude oil futures were down 0.8%  on a spike in reported gasoline inventory.



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