The Fed

The various US inflation measures were hot, and the monetary response remains/will be net hawkish. No surprise there, given the outcome.

What was somewhat surprising was the market reaction. More muted, I suppose, although we’ve all been browbeaten into expecting more persistence/upside surprises regarding inflation. “Accustomed to surprise” seems like an odd sentence to type.

I’m in the camp of “sticking close to the strategic asset allocation” given there are good reasons to be bullish and good reasons to be bearish. That said, it feels like today is an underreaction, and I can’t imagine the market trading well into a 100bp rate hike (which has entered the chat) later in the month.

So, the event horizon shifts to later in the month. But we are very close (if not already at) the peak rates hawkishness (specifically the messaging from the Fed and actual Fed funds rate, if not the 10s), and then we can slowly get back to a normalised path for everything else.

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