A measure of the extent of market uncertainty about inflation is revealed by just how receptive markets have been to recent central bank messages, says Adam Button of ForexLive.com.
A heavy dose of Fedspeak on Monday delivered a consistent message about transitory inflation, and it's one markets are listening to. With PPI coming up next, and CPI on Wednesday, the debate is just getting started.
The dovish camp is also excited by the possibility that the dovish Lael Brainard was interviewed at the White House for the top job at the Fed. And most importantly, real yields are hitting lows everywhere, as inflation elevates, and central bankers stay back.
Markets turned last week, after Powell and other top global central bankers offered a consistent and cohesive view on high prices—that they will dissipate in time.
Many market participants disagree, but middling levels of conviction are revealed by how easily the market is moved by talking points we've heard before. The reason that traders have been saying “don't fight the Fed” for generations is because it's difficult.
The stakes in the inflation debate are enormous and it will ultimately be the data that leads, not the Fed. With that in mind, PPI and CPI in the next two days loom large. PPI can, at times, offer clues to the PPI report, so we'll be watching closely.
Other signals come from markets, where yields have moved back into a range showing lower inflation and a slower path of rate hikes. A potential is also in play above the series of summer tops, stretching to $1833.
Learn more about Adam Button by visiting ForexLive.com.