No sign yet that peak inflation is a watershed moment for markets

So far, at least, tentative evidence of a peak in inflation in today’s US consumer price index report has not been a watershed moment for US government bonds or equities. Both Treasuries and the S&P 500 initially reacted unfavourably, probably due to a greater-than-expected monthly rise in “core” prices. We don’t expect their fortunes to improve decisively until shortly before the Fed stops tightening policy in summer 2023, even as inflation drops back further and the US economy experiences a “soft landing” in the meantime.