Until this release the market had very little reason to tune into tomorrow’s FOMC decision but suddenly there is an inflation story to cling to. What’s especially important in the Fed’s mind is that the rise in today’s inflation data was broad based and not driven by a single skew or factor.
The US dollar continues to extend gains after the higher-than-expected numbers and a nod from the Fed toward inflation would make for a much larger move.
The hawks will be emboldened after this data and traders will be razor-focused on inflation comments in the statement or Yellen’s press conference. Even if there isn’t a grand headline a la Mark Carney, the market could spin any kind of inflation comment in a hawkish direction.
