And it sure did not disappoint. It was very much like a poker game, with the flop (CPI report) being presented first. Then, we moved on to the turn (dot plots) and finally the river (Powell's presser). Overall, it ended with a push and pull by the time we wrapped things up yesterday. It was a case of CPI giveth, and Powell taketh away.

Looking at the US CPI report first, there were slight misses on estimates across the board. But what did the details say?

One of the standouts in the data yesterday was that supercore inflation turned negative for the first time since September 2021.

US CPI Supercore 05-2024

That's a notable development and it owes much to the first decline in auto insurance prices, also since 2021. That comes after much stickiness in auto insurance over the last two years at least. But if this is truly a sign that it is starting to pass through, then it can be argued that we are seeing price patterns moderate to a healthier state.

In terms of annual readings, auto insurance was seen at 20.3% year-on-year in May. That is down from 22.6% year-on-year in April. For some context, auto insurance contributes quite a hefty chunk to supercore prices that is detailed in the report:

US CPI Auto Supercore 05-2024

If we are at a turning point, that should see further moderation in the overall report as well in the months ahead. The only question now is whether shelter prices will start to converge but that's more of a lagging issue perhaps.

So, the inflation report yesterday was definitely progress but there needs to be more of that in the months ahead. It's all about consistency now at this stage.

As for the Fed, the dot plots was the first focus point and it pointed to just one rate cut for the year. The situation is of course still fluid in the coming months. However, policymakers had time to scrutinise the CPI numbers but still decided that it's not enough to push too aggressively.

I reckon that's more of a prudent and better safe than sorry approach, more than anything else. Powell reaffirmed that, emphasising the need to wait on more data before committing to anything.

In essence, markets got excited about the possibility of sooner rate cuts and that eagerness was dashed by the Fed.

Going into yesterday, traders were pricing in ~40 bps of rate cuts for the year. And now that the dust is settling, we're seeing ~44 bps of rate cuts priced in. It may not represent much of a change but the expectations have shifted a little.

Previously, traders were looking to November as the likely timeline for the first move. Now, there is hope for a September push at least. The odds of that are now at ~66% but down considerably from the near ~80% following the inflation numbers yesterday.

In the bigger picture though, we're still pushing and pulling between one to two rate cuts for the year. And as long as the Fed is maintaining a ceiling firmly there, it's tough to bet too much on protracted dollar weakness until we get more data like the one yesterday.

I mean, we've seen how this played out before. One just has to look to the CPI report last month. Turnaround Thursday incoming?