FOMC tomorrow can we remember the stealth hike last time out? Chairman Powell managed to get the market to price in a hike simply by admitting they might have to think about thinking about interest rate hikes. As a Hedgeye subscriber, I have seen this chart many times.
The "higher than consensus" numbers keep getting higher. Many now use base effects in their vocabulary I have learnt from Keith McCullough and his former Hedgeye partner Darius Dale. This chart shows CPI inflation peaking here in Q2 at 4.85% then slowing (estimate) to 4.70% in Q3. Does this classify as "disinflation"? Of course it does the number is smaller. How is the market going to price it in? Inflation falling from a cycle peak to a number 199bps higher than the highest in the last two years.
Then we have a question from @Ross Moger Bonds are wrong? Which ones are wrong is the important question he asks. From the chart above inflation although peaking doesn't look all that transitory if the model is to be believed. Hedgeye also has rent data that has not been included here which could push the numbers above 5%.
The long end of the curve is pricing in slower growth. Now we have to be careful here it is slower growth globally. UST are the safety trade of the world, not just US citizens/companies/asset allocators. Now, this has born out recently with weakness in China and Hong Kong also Japan is starting to move in... (More)