Bullish CPI, hawkish Fed. 📈📉

Paid subscriber analysis

After we got a better than expected CPI data before market open today (3.3% vs 3.4% expected, 0% m-o-m change), and markets rallied on the news to new all time highs, all eyes were on FOMC and the updated summary of economic projections (SEP).

The initial implication of the SEP was that it was quite hawkish. Why? Because the Fed adjusted rate cut expectations to only 1 cut for this year, down from 3 cuts based on the March projection. Now the median federal funds rate for 2024 is projected to be at 5.1 (instead of 4.6).

Also notable is the higher than projected PCE inflation by the end of the year, both core and headline (by 20 basis points), and a higher projected unemployment in the long run (also by 20 basis points).

In the dot-plot notice that most members are actually leaning towards a slightly lower end of year rate (4.9, or 2 cuts), but the median is driven by 4 members who still don’t see any cuts for this year. But make no mistake, the message from the FOMC was hawkish.

These were our expectations coming into the week: