After Yesterday’s CPI, rates market turns hawkish in hike expectations

After inflation readings from April released yesterday and two prominent members of FOMC warned that market is underestimating June hike possibility, rates market has turned a bit more hawkish in their expectations.

In April, consumer price index rose 0.4% m/m, compared to 0.1% in March. It is up 1.1% y/y. Core consumer prices came at 2.1% y/y.

Atlanta and San Francisco FED Presidents, Lockhart and Williams have warned of higher possibility of a rate hike in June than market is pricing. All in all, both sees possibilities of two or more rate hikes this year.

• Market is now attaching 81% probability that there won’t be a hike in June, compared to 91% before the reading.

• Market is attaching 62% probability that there won’t be a hike in July, compared to 73% before.

• Before CPI market was pricing 57% chance of no hike in September, now it’s pricing 55% odds, that there will be one.

• Market is attaching 58% hike probability in November and 72% probability for December.

Dollar index is currently trading at 94.73, down -3.95% YTD.