CPI was a 'Goldilocks, kick-the-can' print for Fed: Strategist

As Consumer Price Index (CPI) data for April fell mostly in line with expectations, many on Wall Street are once again speculating about how the Federal Reserve may adjust its monetary policy.

RBC Capital Markets Head of US Rates Strategy Blake Gwinn joins The Morning Brief to discuss how the recent CPI print may affect the Fed's decision making.

"I think it's very much kind of a Goldilocks, kick-the-can type of print for the Fed. But I think the retail sales, the softness we saw there certainly a bit of relief for the Fed and I think it's what markets wanted to see to kind of continue, this very, very modest rally that we've seen over the last week."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Nicholas Jacobino

Video Transcript

Well, April's inflation data coming in in line with expectations.

It's pushing stocks higher at least for now to start the trading day.

But what could the signal for the feds path forward?

We want to bring in Blake Gwen, he's R BC capital markets, head of us rate strategy.

So Blake, let's start actually talking about the move that we're seeing here in the bond market because that makes a lot more sense here.

You got treasury rallying just a bit, you got yields coming under a little bit of pressure.

Do you expect this movement that we're seeing here this morning to hold?

Yeah, I do.

I mean, I think um you know, coming into this inflation data this week and retail sales today, uh you know, I think this kind of no landing hike narrative that it really picked up uh in the last month or so.

Um was definitely feeling a bit stretched.

Um You know, I think we had that very, very positive run of data in Q one and um you know, markets started pricing out a lot of the cuts that we had coming into the year.

Um But, you know, I I think as we heard Powell that, you know, hikes were off the table, not that surprising to us, but I think markets had at least started to price some of that probability that, you know, there may be a hike this year that we would reopen that conversation that has come out of the market post Powell and then with kind of the softer NFP.

And I think that basically is continuing today.

I think that has probably a bit less to do with the CP I print, as you said, it was in line.

Um I don't take a lot of signal from that.

I think it's very much kind of a goldilocks kick, the can uh type of print for the Fed.

But I think the retail sales, the softness we saw there certainly a bit of relief for the Fed.

And I think, um it's what markets wanted to see to kind of continue uh this very, very modest rally that we've seen over the last week.

And so with that in mind, do you think markets, uh I mean, without going too far down the line of, you know, strategy and, and investment strategy?

But do you think we could potentially see more all time highs, even if we did see some start to sputtering or, or more of a trend get locked in that would then point towards uh a cut to come at some point um, all time highs in yields.

You mean, I mean, I think for our view, if you kind of look at where we were in that 450 to 5% um range last fall, uh which as of now stands as kind of the high for the cycle.

I think those yield highs are gonna be very difficult to get to.

Um, you know, I think uh a lot of people were kind of focused on that several weeks ago.

Um You know, when we were uh uh pushing higher and as I said, kind of that, no, that no um no landing hike narrative is really picking up a lot of questions were coming in about, are we going to see uh you know, return to 5% tens, that kind of thing?

Um I think that door is largely closed.

I mean, I think if you look at where we were last year uh with, you know, still pricing in some probability of a hike a much better string of data than, than even what we were seeing in kind of Q one.

You know, the, the data was very, very strong, I think in August last year and on top of it, you had these kind of term premium concerns around treasury supply and deficits and things that really added to that move.

And um I think all of those things basically across all those fronts.

Uh we've softened up um this year and I don't really see those coming back to the fore.

So I don't really think we're going to see a retest of that kind of 5% high in, in yields.

Again.

I think we've seen the highs for the cycle already.