US macro/CPI

A very good inflation print for May, out of the US. Note headline came in at zero (see first column, third row) and core at 0.2% (below consensus for 0.3%) and was even better unrounded (0.16%m, see third column, second row).

Markets liked it, a strong rally across the board. Yields dropped a lot initially, although the Fed presser and dot plot were viewed as hawkish, with the terminal rate being tickled up a touch (2.8%) and the median dot suggesting just the one cut for the remainder of the year. Worth keeping in mind, though, that there are 7 members who are expecting two cuts, so the median is not a perfect descriptor of the distribution.

In any case, the Fed has already said they’ll be guided by the incoming data, so we needn’t place too much emphasis on the forward guidance; the unemployment rate is 60bps off its lows, inflation is returning to target, and the US dollar is strong, that tells us policy is restrictive (how else can you generate such a combination), working, and importantly, can relax over time as policy objectives are achieved.

All consistent with goldilocks and the soft landing.

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