Markets were quiet unwilling to make any significant moves ahead of key inflation data released today and tomorrow. Bank America writes “the market is pricing in the smallest implied reaction to the CPI since 2021.”
Consensus is expecting a 0.3% increase in both the headline and core CPI. Year over year, the CPI is forecasted to increase by 2.7% and 3.3%, respectively. Both the monthly and annual expected increase is a nominal uptick from the month before.
Most have recognized that inflation is stuck around current levels, levels that have existed for the past 6-8 months.
Growth however appears to be accelerating. According to the Atlanta GDP Now model, the fourth quarter rate is now projected to be around 3.3%, up from the third quarter pace of 2.8%.
Against this backdrop, the futures markets are still expecting a 80% chance that the Central Bank will lower rates next week. Is this realistic?
Speaking of realism, what is the realistic outlook for long term interest rates? Long dated Treasuries have rallied about 20 to 30 bps the past week even as consensus believes that Trump will increase the deficit at greater pace that had occurred during the past four years. But what about DOGE?
House Speaker Mike Johnson said House Republicans “want to be willing partners” in assisting the Department of Government Efficiency after Elon Musk said the DOGE intends to cut 75 percent of all federal agencies. “We certainly hope” to cut the number of federal agencies from 428 to 99, as Musk has vowed, Johnson told Fox News host Martha MacCallum in an interview Wednesday night
Is this remote possible given the massive pushback from proposals of freezing state and local hiring?
It is largely believed a crisis must occur before any meaningful action be taken to address the deficit.
Spending cuts and growth are perhaps the only appropriate course of action. According to the CBO, the top 1% earn 26% of all income in society and pay 46% of all taxes, not including taxes on the state level.
The CBO further states, the middle class which is defined as 50% to 75% of all wage earners, make almost 18% of all income but pays only 8% of Fed taxes.
Data states that revenue collection is at a record but so is spending.
What will happen today?
Last night the foreign markets were mixed. London was up 0.13%, Paris up 0.15% and Frankfurt down 0.02% . China was up 0.29%, Japan up 0.01% and Hang Seng down 0.77%.
Futures are flat ahead of the CPI. The 10-year is off 4/32 to yield 4.25%.
