The Expected – US CPI.
Today’s US CPI came in as expected with headline inflation of 7.9% and core inflation of 6.4%.
With the recent jump in commodity prices threatening to prolong the period of higher inflation, we expect the Federal Reserve to raise rates 25bps next week and signal that a steady stream of increases are on the way.
The Unexpected – ECB.
The ECB meanwhile, surprised everyone by accelerating the wind down of asset purchases so that they would end in Q3. Most analysts expected them to hold steady as they assessed the impact of the Russian invasion on the European economy.
The ECB is clearly worried about inflation, and by accelerating the taper is providing itself the flexibility to raise rates in Q4 or in early 2023.
The surprise contributed to weakness in equity and bond markets.