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  • Jonathan Poyer

CPI Delivers and the Bond Market Takes Notice. Investors Likely to Follow


CPI delivered and then some, with MoM and YoY lower than expected for both CPI as well as Core.



Stock and bond market participants loved the report, figuring that this would be a vital reading to allow the Fed to (finally) make a move lower later this year, with September being the generally expected start.

 


The Fed followed with an unchanged announcement hours later, as expected. However, rather than the typically "positive and upbeat" Powell of the last many months, the Fed Chair seemed to retreat into a much more (again, relative to the last several post-decision comment sessions) cautious stance, remarking that one good report, i.e., the morning's CPI #s, was all part of the process but was still just one point. Many noted as well that the committee tone moved more hawkish, with total cuts through the end of 2025 being cut to 5 moves from 6, as well as the longer-term interest rate projection moving to 2.8% from 2.6%.

 


Markets retreated as Powell's comments were digested, although the S&P and Nasdaq still ended respectively 0.9% and 1.5% higher on the day. Bonds gave back some of their earlier rally but the 10yr still closed at 4.32%, down 9bp. Overall tone was perhaps "good-but-could-have-been-better," and sometimes that can almost feel like a down day but with rates lower and a surprisingly good CPI report, hopefully the bond market can continue its positive momentum.



It should definitely not be lost on anybody that this at the very least takes hikes​ even more out of the picture, which is a key cog in the scenario of drawing investors back to the bond market.

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