Fed funds futures are extending gains in the wake of the tame
Fed funds futures are extending gains in the wake of the tame, albeit expected CPI data. Inflation dynamics will be a key for the Fed's policy path ahead and this reading will keep policy unchanged at the upcoming January 29, 30 FOMC, not that anyone was forecasting a hike. Indeed, the futures are showing virtually no chance for a tightening this year, while a couple basis points in easing is priced in by Q1 2020. Today's bond friendly readings, the first sub-2% y/y print on the headline CPI since August 2017, along with the slippage in the core inflation rate over the last six months support the FOMC's shift to a more patient and flexible approach. However, it will be an interesting policy debate at the Fed if growth remains solid. Chairman Powell wasn't willing to completely dismiss Phillips Curve analysis and there are still several on the Committee who worry that stronger growth will eventually push up prices. It's not obvious, though, that the Fed will make a preemptive strike anytime soon.