Despite Easing Inflation, Fed Governors Caution Against Early Cheers

It has been a packed week for economic data reports. The most anticipated was Tuesday's Consumer Price Index (CPI), offering a current snapshot of US inflation. Both headline and core CPI came in a tenth lower than expected month over month as well as year over year. Yields immediately tumbled as investors saw this as Fed policy having the desired effect and thus fueling the market narrative talked about before that Fed tightening is done. Wednesday saw yields reverse slightly as Retail Sales came in a bit stronger than anticipated, indicating that although slowing down the American consumer remains resilient.

It is worth mentioning that during earnings calls this week Walmart warned it sees a challenging environment ahead for US consumers. Thursday morning's Initial Jobless Claims came in higher than expected, hinting that the once-resilient US labor market might be showing signs of strain. Despite the prevailing market belief that Fed rate hikes are finished and 2024 might witness rate cuts, Fed Governors continue to emphasize a data-dependent approach and readiness to hike rates if needed. While this narrative tug-of-war plays out, more economic data is released, and geopolitical events evolve, expect volatility to continue.