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Posted December 17, 2025 at 1:20 pm
Sharp declines in tech shares are weighing on the major stock market benchmarks a day before the last CPI of the year. Treasuries were taking losses too, until Fed Governor Christopher Waller stated that labor trends were very soft and that the central bank’s current benchmark is as much as a percent above neutral. The dovish remarks boosted Waller’s odds of becoming the next Chair to 30%, as justifications for deep cuts are what President Trump wants to hear. He did counter those statements favoring looser financial conditions by reiterating the importance of the institution’s independence from the White House though. The yield curve is now relatively flat on the session alongside the greenback, and tomorrow’s moves will largely depend on whether inflation comes in at 2.9%, 3% or 3.1%, as the psychological distinction between a 2- and 3-handle is paramount. Fixed-income watchers will certainly be focused on whether the report signals either more or less monetary policy accommodation in 2026 against the backdrop of Wall Street expecting 2 quarter-point drops but the dots only pointing to 1. Elsewhere in trading, the commodity complex is bullish across the board and silver reached a fresh record. Additionally, participants are also reaching for forecast contract exposures as well as volatility protection instruments. Bitcoin is lower, however, as waning speculative enthusiasms in AI related names hamper cryptocurrency momentum.
Tomorrow morning’s Consumer Price Index (CPI) is anticipated to reflect increases of 0.3% month over month (m/m) and 3% year over year(y/y) but my estimates are a tenth of a percentage point lower on both figures. Indeed, my expectation of 0.2% m/m and 2.9% y/y inflation is supported by soft projected readings for shelter, energy and transportation services. Meanwhile, core goods are poised to have risen, although I’m forecasting lighter-than-expected raises for used/new automobiles and apparel which should help generate the downside miss that I’m looking for. A 2.9% reading would likely fuel monetary policy easing excitement, as it would shift the outlook for 2026 cuts from 2 to 2.5, spark animal spirits and drive a year-end rally in stocks and Treasuries. Conversely, however, a result of 3% or higher would hamper dovish sentiments, and move 2 reductions in the next 12 months to just 1 and a half, as the Fed joins other central banks in pause mode in light of persistent cost pressures.
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.
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Interactive Brokers LLC is a CFTC-registered Futures Commission Merchant and a clearing member and affiliate of ForecastEx LLC (“ForecastEx”). ForecastEx is a CFTC-registered Designated Contract Market and Derivatives Clearing Organization. Interactive Brokers LLC provides access to ForecastEx forecast contracts for eligible customers. Interactive Brokers LLC does not make recommendations with respect to any products available on its platform, including those offered by ForecastEx.
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