Traders Bet on Brief December Inflation Bump While Still Seeing Decline Toward 2% in 2023
• Traders are betting on a slightly higher-than-expected annual inflation rate for December that could show short-lived bumps in airfares and vehicle insurance.
• Despite a potential blip up in December, traders still see inflation falling toward 2% this year, supporting potential Fed rate cuts in 2024.
• The December CPI report comes ahead of the January FOMC meeting and could impact expectations for the timing and number of 2023 rate cuts.
• Wage growth remains an "ember that could reignite inflation," presenting a risk not captured by fixes traders.
• Markets may still need to pull back expectations for significant Fed rate cuts given the disconnect with officials' guidance.