FED’S PAULSON SAYS CPI DATA INDICATES INFLATION IS STILL AN ISSUE, WITH INFLATION OUTLOOK RISKS ELEVATED AND UNDERLYING INFLATION REMAINING BETWEEN 2.5% AND 3%

Federal Reserve official Paulson said recent CPI data show inflation remains a live concern, with underlying inflation running between 2.5% and 3% and the outlook for inflation risks described as elevated. The core transmission channel is inflation repricing: a read of persistent underlying price pressure above the Fed's 2% objective tends to push out expectations for the timing and depth of rate cuts, lifting front-end and intermediate Treasury yields and tightening financial conditions. Assets most exposed include rate-sensitive instruments such as short-duration Treasuries and rate-linked equities like housing and utilities, along with the dollar, which typically firms when the policy path is seen as more restrictive for longer. Traders will watch the next CPI release and the core PCE inflation print, since confirmation of stickiness in services and shelter components would reinforce the hawkish repricing, while a softer core reading could reverse the move.

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