Inflation Breaks below Two Percent

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Today’s CPI inflation report was the first sub-2% year-over-year print on the headline CPI since August 2017. This certainly backs up Fed Chair Jay Powell recent dovish tilt. US 10-year bond yields summarily dropped to a 2.6 handle and volatility dropped along with it. This is in-line with the January 9th Fed Minutes report that emphasizes “patience” holding rates steady at 2.5%. This is encouraging and kills “two birds with one stone” that is rates at a high enough level just under the ten year yield to appease the hawks but an indicated pause in hiking to appease the doves. No easy task, but the Fed has not had it easy for the past decade. It sure did help last week to have former Fed Chairs Ben Bernanke and Janet Yellen on either side of Jay Powell as they spoke extemporaneously and Fed Chair Powell read from a script. Please see our 2019 Forecast: The Storm Before the Calm.

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