Rate hike odds courtesy of CME Fedwatch Tool.
The markets now expect the Fed will hike 50 basis points. 0.50 percentage point at its next FOMC meeting on March 16 according to CME Fedwatch.
CPI Jumps Most in 40 Years
Consumer Price Index (CPI) data from BLS, chart by Mish
The jump in rate hike expectations follows a BLS report that shows CPI Jumps Most Since February 1982
Year-Over-Year Key Details
- The all items index rose 7.5 percent for the 12 months ending January, the largest 12-month increase since the period ending February 1982.
- The all items excluding food and energy index rose 6.0 percent, the largest 12-month change since the period ending August 1982.
Bond Market Reaction
US Treasury bonds reacted negatively to the data which was a bit worse than expected.
Huge Rate Hike Probability Jump
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Rate hike odds courtesy of CME Fedwatch Tool.
I believe this is the biggest single-day rate hike jump expectation in the CME Fedwatch history.
Expectations are fluctuating wildly, however, and now at 71.5% as of 10:48:29 CT.
Twitter Discussion
Quite amazing they stuck with QE.
— Mike "Mish" Shedlock (@MishGEA) February 10, 2022
And these clowns want us to believe they will act on the data! https://t.co/b18NPxbwn7
In total agreement with @TheBondFreak . The Fed does not like to surprise.
— Mike "Mish" Shedlock (@MishGEA) February 10, 2022
I will comment more on bonds at the market close.
As of now, the 5-10 spread is down to about 9 basis points
R E C E S S I O Nhttps://t.co/dY4DlfXCSM https://t.co/H2ZT7e7Mog
Key point: The Fed does not like to surprise. I expect various Fed presidents to attempt to walk down this expectation.
Looking Ahead
Powell has to be praying for mild CPI reports in February and March.
— Mike "Mish" Shedlock (@MishGEA) February 10, 2022
Key Point: Rent is supposedly only up 3.8% YOY and OER, the largest CPI component, only 4.1% YOY I do not believe those numbers. A pending hot OER would be very problematic for the Fed.
OER stands for Owners' Equivalent Rent. It is the mythical price one would pay to rent one's own house from oneself, unfurnished and without utilities.
OER is 24.251 percent of the CPI. Rent of primary residence is another 7.398 percent.
National Rent Index Is Up 17.8% Year-Over-Year
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National Rent Index Year-Over-Year Courtesy of Apartment List
On February 5, 2022 I noted The National Rent Index Is Up 17.8% Year-Over-Year, the BLS Says 3.3%
The new numbers from the BLS, as of January 2022,are 3.8% for rent and 4.1% for OER. I believe both numbers are low.
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