Inflation came in hotter than expected. The immediate question: does this force the Fed's hand?
Here's what matters. One hot print doesn't make a trend, but it does complicate the narrative. Markets had priced in dovish pivots. Now we're back to watching core CPI, wage growth, and whether services inflation stays sticky.
The Fed's in a tough spot. Cut too soon, risk reigniting inflation. Hold too long, risk breaking something in credit markets or employment. They'll probably hold rates higher for longer than consensus expects.
Historically, inflation doesn't surrender easily once embedded. The 1970s taught us that. Declaring victory early is expensive.
Watch credit spreads, not just equity indices. That's where stress shows up first when rates stay elevated. And remember: the Fed would rather overtighten than undertighten. They know the history too.
Here's what matters. One hot print doesn't make a trend, but it does complicate the narrative. Markets had priced in dovish pivots. Now we're back to watching core CPI, wage growth, and whether services inflation stays sticky.
The Fed's in a tough spot. Cut too soon, risk reigniting inflation. Hold too long, risk breaking something in credit markets or employment. They'll probably hold rates higher for longer than consensus expects.
Historically, inflation doesn't surrender easily once embedded. The 1970s taught us that. Declaring victory early is expensive.
Watch credit spreads, not just equity indices. That's where stress shows up first when rates stay elevated. And remember: the Fed would rather overtighten than undertighten. They know the history too.