What's priced in for the Federal Reserve after CPI

<p>The market is acting as if core CPI at 4.0% instead of the 4.1% reading expected is a gamechanger. </p><p>US 5 year yields are back to where they were in August… back before the Fed started talking about higher yields doing their work for them. </p><p>That could worry the Fed, especially if tomorrow's retail sales data shows sign of a consumer pickup. There other signs of a strong consumer as well, with this survey showing a record number of Americans planning to go on vacation to a foreign country in the year ahead.</p><p>When you look at the Fed stance, it's not just about tagging 2% inflation because of disinflation in shelter or energy costs, they want to get to sustainable 2% inflation. Over and over, they have repeatedly emphasized that it will take a weaker economy to make that happen. Could they back down to markets? They certainly could but the timeline that markets are putting on hikes right now is aggressive.</p><p>After today's data:</p><ul><li>No chance of a hike in December, from a 7% chance previously</li><li>A slight chance of a cut in January, from a 33% chance of a hike previously</li><li>A 91% chance of a cut priced in for the May 1 meeting</li><li>102 bps in cuts priced in for next year</li></ul>

This article was written by Adam Button at www.forexlive.com.