Stock indices tumbled at the start of the session on Wednesday after retail inflation came in hot, suggesting little rollover in price pressures.
Rates shot up. The 10-year Treasury yield is up 8 basis points to 3.03%, having been at 2.95% ahead of the numbers. The 2-year is up 14 basis points to 3.18%.
Headline June CPI rose 1.3% on the month, topping forecasts of 1.1%. It hit an annual rate of 9.1%. Core CPI rose 0.7%, ahead of the 0.6% consensus, and was up 5.9% y/y.
“Looking forward, inflation will come down over the next couple of months,” Mohamed El-Erian tweeted. “That’s the good news. Less good is that a third wave of inflationary pressures is building and will be unleashed if the Fed doesn’t get its act together quickly.”
“With the first best policy option now long gone due to the first two stages of the ongoing Fed policy mistake, the recession risks are increasing accordingly. This threatens a second big hit for households, especially the most vulnerable segments of our society. And to think that much of this could have been avoided.”
The numbers cement at least a Fed hike of 75 basis points this month and markets now see a 41% chance of a full point, according to CME FedWatch. Swap markets are pricing in 82 basis points for the July meeting.
The dollar strengthened and broke through parity with the euro.
Later this afternoon, the Fed Beige Book on regional economic activity arrives.
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