Coming in Hot


The Consumer Price Index (CPI) is a measure of inflation as a rate of change.

The January CPI report is coming in hot and will be released on Tuesday.

“Hot” in that sentence implies it is coming soon and will have a big impact on arrival.

However, in the case of the actual data it will be a market mover whether inflation is cold, hot, or just right.



Market participants position themselves based on how they think inflation is “trending”.

Because this time last year we experienced a 40-year high in CPI (red hot), the “expectation” is that the year-over-year number will be more subdued (lukewarm) when compared to the elevated levels from 2022.

Perhaps more important than the annual figure is the month-to-month change, since it would be a better proxy for the current trend of inflation.

In January month-to-month Headline CPI dipped negative, and if this negative trend continues then both bonds and risk assets (stocks) are likely to rally.

(NOTE: Headline CPI includes food and energy, Core CPI does not)


Stocks would rally based on the assumption that a slowing (or negative) trend in CPI means The Fed will likely stop hiking rates soon.

As I was reminded by Brent Johnson on a recent episode of the “Milkshakes Markets Madness Show”, stocks trade on expectations not absolute value.

Fed rate hikes create “tighter” financial conditions. As they raise their overnight lending rate, the cost of short-term credit also becomes more expensive.

Add the impact 40-year high inflation has to all sectors of the economy, especially consumers, and the outlook for economic growth in the near future becomes worrisome.

This double-whammy has been weighing on the price of stocks for over 12-months. Meanwhile, the cost of margin debt used by investors speculating in the stock market has also increased along with the Fed rate hikes adding to the slide in asset prices.

However, if the Tuesday report fits a narrative that CPI is cooling, and the Fed has finally “slayed inflation”, then investors will look to position themselves ahead of a potential pause in the rate hiking cycle by buying stocks before any clear decision has been made by The Fed.

This will likely further bolster the latest relief rally which has been born out of the same speculation that The Fed is done hiking rates.

Some investors will go as far as to try timing a pivot – betting on when The Fed will need to reverse course and start cutting rates.

This outlook is based on the belief that the porridge (inflation) will cool too quickly, and the economy will fall into recession (hard landing).

In response, the Fed would be expected to lower their Fed Funds Rate and potentially embark on a new round of monetary stimulus (quantitative easing).

Last week, in a 90-second social media video called “Game Over“, I discuss what signals the market has been giving that suggests the Fed has “over-tightened” and the porridge is about to get ice cold.

This specific “signal” usually marks the end of Fed rate hikes, and absence a scenario on Tuesday where the porridge (CPI) is too hot, the Fed is likely done raising rates.



For bonds, the end of inflation’s uptrend has been very welcomed news.

As long as there is no surprise to the upside (higher than expected CPI data), then bonds should continue to be happy.

The cooling off in inflation data is why we have seen a strong improvement in mortgage rates since the November highs.

There is nothing more feared and hated by the bond market than inflation, especially 40-year high inflation.

I’ve explained in numerous pieces of content, including blog posts, social media videos, and even episodes of the Mortgage Guru Podcast, that the reason mortgage rates raced above 7% for the first-time in decades was NOT because of the Fed, but because of inflation.

I have also explained that both inflation, and the Fed’s response with rapid rate hikes, would eventually lead to a recession (and lower mortgage rates).

The big debate currently is whether the Fed can pull off a soft-landing (raise rates without a recession). A much cooler than expected CPI print on Tuesday would add more doubters.

Although, this would be an outcome much more favorable to bonds, including mortgage bonds, and as a result mortgage rates would improve on the news.


Stay tuned for the CPI data on Tuesday and the subsequent market reaction.

I will likely share a few tweets and maybe even a video explainer on social media, so be sure to follow me if you do not already.

Links to all my social can be found on on my website HERE.

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