Powell headache

The Fed funds market is now pricing in a 29% chance of a 50 basis point hike at the July FOMC meeting, with the remainder at 75 bps. That's up from 13% a day ago.

A few things have shifted the odds:

1) Energy prices have declined

There have been large drops in oil and natural gas prices. I don't think the Fed looks at that month-to-month but if prices of oil and natural gas stay where they are right now it will mean that June/July headline inflation will come down.

2) The UMich revision

The Fed hit the panic button on the prelim UMich long-term inflation expectations data. The final number is back within the usual range. It was an indicator that Powell and others specifically cited as a reason to shift.

3) Market based inflation expectations

The market is sensing a rising chance of a recession and that's pushed down yields and real yields. The Fed may have a chance to go slower on rate hikes.

Overall, it's still a long ways until the July 27 FOMC with many economic indicators to come. But what once looked like a sure thing is suddenly up for debate.