CPI Report to Decide Fate of Rate Hike and Treasury Curve
The August CPI report is crucial for the Federal Reserve as it will be the last inflation print before their September 15-16 meeting. The market has already priced in a hike, not a cut, and the long end of the Treasury curve is in open revolt with multi-year highs on 10-Year Treasury Notes Yield (US10Y.BD) and 30-Year Treasury Bonds Yield (US30Y.BD).
The core inflation number matters most to the Fed's decision. Citi projects a +0.184% monthly core, while Goldman Sachs and Morgan Stanley expect +0.23%. J.P. Morgan, however, forecasts a hike in December to 3.75-4.00%, explicitly to defend the institution's inflation mandate.
The report will test the Fed's credibility as Chairman Kevin Warsh has sounded hawkish but done nothing. The long end of the Treasury curve won't behave, and buyback attempts have failed. Demand is turning price-sensitive, making a hot core print more beneficial for the long end than expected.