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Inflation is again surprising to the upside, and some Fed members are now openly discussing a 50bp hike. Rates markets have already priced in a lot. But the Fed has a long record of reacting late, and the market has a long record of getting the size of the move wrong. Our CPI model has tracked US inflation closely for 25 years, and it got October’s print within five basis points. Its path for the next few CPI releases doesn’t match what the market is pricing.
Below, we show when we expect inflation to peak, where it is likely to print, and when the Fed’s hawkish messaging should turn from a headwind into a tailwind for risk assets.
The 10x Research Inflation Model (leading) vs. US CPI YoY
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