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Some FOMC Pushback To CPI Reaction Likely

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A key factor to consider for Fed signalling on the December rate move - apart from responses to the incoming data - is any Fed discomfort with the easing of financial conditions in the wake of the release.

  • The Goldman Sachs Financial Conditions Index had one of its biggest daily drops yesterday in series history - eclipsed only by Mar 24, 2020; Oct 21 1987, and twice in 2008.
  • It's still reflecting a large and fast tightening of conditions overall this year, but there was no sense that the Fed was uncomfortable with how conditions had gotten in the first place.
  • While 10Y real rates (TIPS implied) remain elevated vs Jackson Hole levels, they dropped 25bp Thursday, one of the biggest falls ever.
  • Oil prices have since jumped 4+%, tech stocks +7%, with the dollar having its worst day since 2015: all inflationary moves, and all set to rebound inflation expectations.
  • Yesterday saw a fairly half-hearted pushback by some FOMC officials against over-exuberance. But if we see further easing continue, a pushback by FOMC officials is quite plausible between now and the December meeting.

Source: BBG, MNI

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A key factor to consider for Fed signalling on the December rate move - apart from responses to the incoming data - is any Fed discomfort with the easing of financial conditions in the wake of the release.

  • The Goldman Sachs Financial Conditions Index had one of its biggest daily drops yesterday in series history - eclipsed only by Mar 24, 2020; Oct 21 1987, and twice in 2008.
  • It's still reflecting a large and fast tightening of conditions overall this year, but there was no sense that the Fed was uncomfortable with how conditions had gotten in the first place.
  • While 10Y real rates (TIPS implied) remain elevated vs Jackson Hole levels, they dropped 25bp Thursday, one of the biggest falls ever.
  • Oil prices have since jumped 4+%, tech stocks +7%, with the dollar having its worst day since 2015: all inflationary moves, and all set to rebound inflation expectations.
  • Yesterday saw a fairly half-hearted pushback by some FOMC officials against over-exuberance. But if we see further easing continue, a pushback by FOMC officials is quite plausible between now and the December meeting.

Source: BBG, MNI