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1/5 The fed funds futures have a HIKE at the end of the month (July 29) at 45%! (55% no move) Tomorrow morning's CPI report and Warsh's testimony will decide it. -- "When the Fed starts panicking, I can stop panicking." A hike stops rising yields; root for it. 🧵 2/5 The fed funds futures market now puts a July 29 HIKE (at the next FOMC meeting) at 45%. (55% no move) https://t.co/wkIRpC9J7w 3/5 Tomorrow's CPI report/Warsh's testimony (House at 9 AM) will decide. Our June CORE CPI expectations (the metric that counts here) * 0.3% = Fed hikes on July 29th * 0.2% = We debate a July 29th or Sept 16th (next meeting) hike. Sept hike now 104%! * 0.1% = Sept 16th Hike 4/5 Headline CPI is expected to be -0.1%, with June's gasoline collapse subtracting 0.4%. So, CORE CPI is the metric for the hike. Besides, crude is "un-collapsing" right now (up 13.7% today). Crossing Tonight: *BRENT OIL RISES TO $85/BARREL AS TRUMP REINSTATES IRAN BLOCKADE https://t.co/gYct05koKd 5/5 Should the Fed raise rates? I think the phrase that describes this period is at the top of this chart "When the Fed starts panicking, I can stop panicking" The top panel is the 10-year inflation break-even rate, and the bottom panel is the 10-year yield The red area shows when the Fed was hiking rates, and the green area shows when they were cutting rates. When the Fed is hiking rates, the market calms down about inflation, and break-evens fall. (top) When the Fed cuts rates, the market interprets it as a sign that the Fed is not concerned about inflation. Break-evens stop falling. If the Fed wants 10-year yields to stop rising, it should start panicking a bit about inflation and hike rates. Then bond investors will calm down.