Treasury yields price in the “last mile is the hardest” narrative

Summary

Markets seem to be overreacting to a puzzling core CPI figure despite continued evidence from core PCE prices disinflation Fed’s argument on the need to wait for “more good data” has been recently supported by recent strong job creation data as well as by signals of sticky core CPI services inflation

Key points

• Key points:
• The more bening outlook depicted by continued core PCE prices disinflation did not prevent the Treasury market from pricing in some of the recent “last mile is the hardest” narrative
• Expectations for rate cuts this year experienced a notable shift this month as they moved from anticipating 150bp worth of rate cuts closer to December’s Fed projections of three 25bp rate cut

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