Supersize March Hike in Play After CPI Rattles Markets

Rates explode higher on a 40-year high CPI print. Well, the only “rate” that closed low today is the NBC Winter Olympics viewership rate, which is trending to be a historic low for the Olympic Games. Market interest rates on the other hand went haywire today after the Labor Department released January’s consumer price index data that showed headline consumer prices increased by the highest rate in 40 years. The CPI print forced traders to reprice their rate bets with traders now pricing in a higher probability of a 50 bps hike in March rather than the 25 bps prior to the CPI data. The 2-year U.S. Treasury yield had its largest one-day jump since 2009 increasing 21 bps on the day to close at 1.58%. The 10-Year U.S. Treasury yield would breach 2.00% and close at 2.029%, a 1/10th of a bp lower than the 7-year with the long-end of the curve slightly closing the day a touch inverted.

Consumer prices hit the highest level since February 1982 January’s headline year-over-year consumer price index (CPI) increased 7.5% representing the seventh consecutive month with consumer prices increasing. Goods inflation (clothes, food, electronics, etc.) increased 12.3% in January, with service inflation hitting a 31-year high increasing 4.6%. Even with recent wage growth hitting decade highs, real wages decreased 3.1% in January showing that recent wage increases can’t keep up with current inflation trends.

St. Louis Fed President Bullard wants to see 100 bps of hikes by mid-summer. After today’s hot CPI print, Bullard made comments that he would like to see “…100 basis points in the bag by July 1…” and also voiced support for a 50 bps hike in March. Bullard said he was “concerned” on the CPI report and that his already hawkish stance has been “…pulled up dramatically…” To note, Bullard is a FOMC voter this year.