Fantastic work as always!
It looks like the market pretty much treated core PCE as a lower impact event. However, I wonder if Core PCE might cause a big move this time around. JPow mentioned core PCE is the most important data point for gauging rate hikes. I wonder if since he literally said it at the FOMC conference, that institutional trading algos have been adjusted accordingly.
Excerpt on core PCE from here.
Most Important Piece of Economic Data for JPow: Core PCE
JPow stated that the main incentive for aggressive front loading of rate hikes is the core PCE, not the CPI, not the PPI. The inflation target is 2%. Currently the core PCE at a 3, 6 and 12 month trailing annualized basis is at 4.8%, 4.5% and 4.8% accordingly.
Think back to Volcker. This means the fed funds rate needs to be at least 5% to meaningfully drive down core PCE. We are now at 3.25%, which means we have 175 bps of rate hikes to come.
The 2Y yield is another indicator of more rate hikes. The 2Y is above 4% right now. The fed is always chasing the bond yield. For example, soon we will see 5% 2Y yield and the fed funds rate will be 4ish%, then a 5.5% 2Y yield and fed funds rate of 5%, etc.
In order to show that the fed is in charge, they would need to immediately hike rates to 5% above the 2Y yield, above the core PCE.