CPI report softens rate hikes odds

The US CPI report yesterday was better than expected with inflation for 2022 YOY at 6.5%. Core CPI was still higher than expected and perhaps that was the reason why the market didn’t rally more. The chart below showed market expectations for rate hikes at the February 1st FOMC, before the inflation report. The probability of a 25 bps hike was 73%. After yesterday’s inflation report, the odds of a 25 bps hike went up to 92%, vs just 7% for a 50 bps hike.

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Source: Bianco Research