Fed Pricing Off Initial Dovish Extremes In Wake Of Annual CPI Revisions

The initial dovish feel provided by the annual headline CPI revisions allowed the re-embedding of some Fed rate cut premium into STIR markets, after a slight reduction earlier today.

• We do note that Dec ’23 & Q423 core readings were unchanged, which probably tempered/countered some of the initial move, while the adjustments to the headline readings were relatively modest and don’t impact the broader inflationary trend.
• In terms of the major markers, Mar ’24 FOMC prices ~4bp of cuts, little changed vs. pre-release levels, while Dec ’24 pricing sits at ~114bp of cuts (vs. ~111.5bp pre-release), off respective initial dovish extremes of ~4.7bp and ~118bp. The assessment of the core readings and overall size of the revisions likely tempered the initial move, given the lack of feedthrough re: the inflationary trend, as flagged above.