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Things That Stick Out - Latest on the Fed

14 Nov 2022 | Bruce Clark

Latest on the Fed

Thursday's smaller-than-expected rise in US CPI gives the Fed room to perhaps take at least one foot off the brake.

Indeed, peak rate pricing in the futures market has eased from as high as 5.25% a week ago to just above 4.80% now.

Predictably, asset markets everywhere are taking it a step further and celebrating the end of the tightening cycle.

What next?

One possibility is that this 'peak rate' party is premature and the easing of financial conditions, combined with a potential reopening in China, reignites inflation.

1) It wouldn't take much to remind investors that global commodities markets remain supply constrained, especially in the metals and energy sectors.

Look at copper. Highest since early Summer.


2) And the Atlanta Fed GDP tracker is running at 4% for Q4, the fastest pace since early this year. What recession? 

Atlanta Fed

Added up, the inversion in the yield curve would appear to be discounting too much doom. This then opens the door for the mother of all pain trades, the yield curve steepener. 

UST 5yr-30yr Spread