Rate Cut Odds Grow as July CPI Avoids a Shock

Yield curve steepens post-CPI. UST yields dropped 4-7 bps in the immediate aftermath of today’s CPI print as the avoidance of a significant inflation blowout further cemented September’s rate cut odds. Futures markets are now pricing in a 96% chance of a rate cut in September, up from 88% yesterday. The yield curve steepened in response as markets grew more optimistic about long-term US economic growth prospects. The 2-year yield closed 4 bps lower at 3.73%, the 10-year yield closed nearly flat at 4.29%, and the 30-year yield rose 3 bps to 4.88%. The sentiment also fueled a rally in equities, with the S&P 500 and NASDAQ closing 1.13% and 1.39% higher, respectively.

July data highlights creeping inflation. Today’s Consumer Price Index data showed inflation was at 0.2% MoM and 2.7% YoY. Excluding volatile food and energy sectors, however, CPI was 0.3% MoM and 3.1% YoY, marking the fastest annual pace in five months and one of the highest monthly changes this year. Faster acceleration of core prices fueled inflation concerns, though all four data points landed within ~0.1% of expectations, likely leaving room for the Fed to cut rates in September. The Fed remains at a crossroads with the delicate labor-inflation balance; upcoming data, combined with today’s CPI print, will help guide their decision.

Trump appoints EJ Antoni to be the next Bureau of Labor Statistics Chief. In a Truth Social post, President Trump announced that he selected EJ Antoni, the Chief Economist of the Heritage Foundation, to lead the BLS. This comes after Trump fired the previous head, Erika McEntarfer, accusing her of manipulating data for political reasons. Trump’s pick has been met with mixed reactions. Jason Furman, who served as the chair of Obama’s Council of Economic Advisers, called Antoni “completely unqualified,” while Stephen Moore, a fellow economist at the Heritage Foundation, called Antoni a “Great economist and statistician.” Antoni’s appointment is subject to Senate confirmation.