Curve Steepens as Inflation Decelerates

CPI comes in below consensus estimates. Year-over-year CPI came in at 8.5%, below forecasts that had called for an 8.7% inflation rate and well below the last print of 9.1%. Core CPI came in at 5.9%, also below forecasts that had called for a 6.1% increase. Rates immediately responded to the favorable print, the 2yr and 10yr Treasury yields declining to intraday lows before grinding higher into the close. The 2-year and 10-year Treasury yields would ultimately end the day only modestly lower, the 2-year Treasury yield declining by 6bps while the 10-year Treasury yield was little changed.

Fed officials maintain hawkish stance, Kashkari completes his own pivot. Both public Fed speakers today emphasized the need for continued tightening of monetary policy, Minneapolis Fed President Neel Kashkari leading the way after he called market expectations for declining rates in 2023 “unrealistic”. Kashkari was known as one of the most dovish members of the Fed but is now advocating for a 4% rate by the end of 2022, and 4.4% at the end of 2023.

Day ahead. Tomorrow we’ll get the producer price version of today’s inflation figures. Forecasts call for producer price inflation to decelerate to 10.4% from 11.3%. Elsewhere we’ll get a weekly look at initial jobless claims which are expected to tick higher from last week’s figure.