Fed calculus: CPI and rate hike bets
TLT•After hotter-than-expected CPI, markets priced a 39.3% chance of a 25-basis-point Fed hike this month, up from 22.1% on Tuesday, and a 58.5% chance of a 25-basis-point increase in December. The Nasdaq fell more than 1.5%, the S&P 500 more than 1%, and the 10-year Treasury yield edged up to about 5.23%.
1. Rate hike expectations
A hotter-than-expected CPI reading prompted markets to raise their expectations for Fed rate increases. CME's FedWatch tool showed a 39.3% probability of a 25-basis-point hike this month, up from 22.1% on Tuesday. For December, markets priced a 58.5% chance of a 25-basis-point increase and a 35.3% chance of a 50-basis-point hike.
2. Market moves and outlook
The Nasdaq fell more than 1.5%, the S&P 500 declined more than 1%, and the Dow was modestly lower. The 10-year Treasury yield edged up to about 5.23%. InfraCap CEO and portfolio manager Jay Hatfield said he expects the Fed to hold off this month and raise rates in December, while projecting below-trend economic growth next year as consumer spending is tempered.
