Inflation Persists, But Hope for Lower Rates Remains

This week witnessed turbulence in bond yields, driven by unexpected rises in both consumer and producer inflation measures. While Core CPI (excluding food and energy) increased by 0.40% month over month and 3.8% year over year, slightly exceeding expectations, it's not the direction the Fed desires. Similarly, the Producer Price Index (PPI) also surpassed forecasts. The Federal Reserve, perceiving current rates as restrictive to economic growth, has hinted at a potential cut, but the timing is now uncertain due to the recent inflation upticks.

Market sentiment suggests rate cuts might commence around the June or July meetings, with an anticipated reduction of 75-100 basis points (0.75% - 1%) by year-end. The upcoming March FOMC meeting is poised to shed further light on this situation.