Recent US CPI figures reported a slower-than-expected inflation rate, showing a 0.2% monthly increase and a 2.8% annual increase, the latter being the slowest since early 2021. While this provides good news for policymakers, particularly as 'supercore' inflation drops below 4%, the path back to a 2% inflation goal is expected to remain challenging. Consequently, rate cuts in the near term seem unlikely. Despite a brief market rally following the announcement, equities struggled to maintain their gains, reflecting uncertain conditions in the market.
Clearly, then, some much-needed good news on the inflation front, and a data slate that will please policymakers on the FOMC, especially with 'supercore' inflation also coming back below 4.0% YoY.
Consequently, the data seems highly unlikely to move the needle in terms of the policy outlook - rates will remain on hold next week, with any cuts in the first half of the year unlikely at this stage.
Still, the direction of travel for rates remains lower, though policymakers will continue to take a patient stance for the time being.
This, though, still strikes me as a market that simply cannot hold onto any gains at the moment.
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