Down is the new up, up is the new down

This morning saw yet another release of yet another report that the markets watch for inflation data. The US wholesale price report was out, and while expectations had been for a .1% increase, the index actually fell by .2%.

The wholesale pricing report is a gauge of prices that producers get for their goods and services in the open market. It is quite often referred to as the PPI Report. This should bode well for future inflation expectations in the US. Moments later the initial jobless numbers also came out, and showed an uptick in the number of people filing for initial unemployment benefits. The number was the highest since Aug 2023. As the inflation goes down, and the unemployment goes up, the bond yields go down because bond prices go up. Lots of up, down and all around.

On the news of the PPI coming down, bond yields started to decline again. The Canadian 5 year yield is down another 2 to 3 ish bps. The US 10 year is also shedding some bps this morning on the news of these 2 reports.

However, at yesterdays Fed meeting and presser afterwards, Jerome Powell re iterated that inflation was still not at the Fed target, and that while he thinks the next move will be a cut, he thinks there is still some time between now and that cut. He sees inflation coming down, but it is still too high for the Federal Reserve. After the conference the USD rallied off the lows of the day, and bonds prices dropped off the highs of the day, and reverted a little bit. The movements from early yesterday morning were reversed by about half the gain and loss we saw early on in the morning. The Fed dot plot was released, and shows that of the 19 members of the FOMC ( Federal Open Markets Committee ) 4 members predicted no cuts, 7 projected 1 cut of 25 bps this year, and 8 officials predicted 2 cuts.

It appears to be a bit of a goldilocks economy right now where inflation is higher than everyone would like, but not low enough to cut interest rates. Unless we see some drastic changes to the CPI, I would expect this scenario to play out over the next few months, and possibly into the end of Q3 and early Q4. Sure, there will be a report that shows inflation rapidly declining or accelerating one month, only to reverse the following month.