Sticky inflation/May CPI 3.8%/PPI 6% revives hike bets, delays cuts
Key Questions
What was the latest US CPI reading?
May CPI came in at 3.8% year-over-year. Core PCE remained elevated between 3.2% and 3.36%.
How did PPI data affect market expectations?
Hot PPI readings at 6% drove bond yields to 19-year highs. This reinforced expectations of persistent inflation pressures.
What are markets now pricing for Fed rate hikes?
Markets have repriced to show 60-84% probability of a hike by January or December. This reflects a shift away from earlier cut expectations.
What is Nomura's updated forecast for Fed cuts?
Nomura no longer expects any Fed rate cuts in 2026 due to lingering inflation risks. Strong GDP growth adds to these pressures.
How are oil shocks influencing inflation?
Oil shocks combined with strong economic growth are fueling inflationary pressures. This has pushed yields higher and delayed anticipated rate cuts.
What is the current level of US Treasury yields?
Yields have risen sharply, with the 30-year hitting levels not seen since 2007. The 10-year has exceeded 4.5% amid the selloff.
Why are hike bets considered an overreaction by some?
Some analysts argue the bond market has overreacted to inflation data. Surveys of economists show mixed views on whether immediate hikes are warranted.
How does strong GDP factor into the inflation outlook?
Robust GDP growth alongside supply shocks is sustaining elevated inflation. This environment supports a higher-for-longer rate path.
CPI 3.8%+ YoY, core PCE 3.2-3.36%, hot PPI drive bond yields to 19-year highs. Markets reprice ~60-84% hike prob by Jan/Dec. Nomura sees no 2026 cuts; strong GDP adds to inflationary pressures amid oil shocks.