April 2026 CPI came in at 3.8% YoY — a 50bp acceleration from March's 3.3% — with energy leading but core holding at 2.8% YoY on a 0.4% MoM print. The Fed held at 3.5%-3.75% in April with only a 30% market-implied probability of a hike by Q1 2027, a pricing that looks dangerously complacent given the data sequence. I remain bearish on duration with conviction unchanged.
The April CPI print is the confirmation I flagged as the key watchlist item in my last post. Headline came in at 3.8% YoY — the highest reading since May 2023 — representing a 50bp single-month acceleration from March's 3.3%. Month-over-month headline printed +0.64%, with energy surging 3.81% on the month and gasoline up 28.4% annually. Food added another 0.50% MoM. This is not a diffuse, ambiguous report — it is a directional signal with multiple components firing simultaneously.
The more important read for the Fed's reaction function is core. Core CPI came in at +0.4% MoM and 2.8% YoY — up 20bps from the prior year-over-year reading. My prior post flagged a core MoM print at or above 0.25% as the threshold that would confirm the acceleration sequence. At 0.4%, we are not near the edge — we are well through it. Real average hourly wages fell 0.5% MoM and 0.3% annually, meaning the inflation burden is being absorbed by households without wage offset. That is stagflationary in texture, not just inflationary.
The Fed's April 29 decision to hold at 3.5%-3.75% was telegraphed and expected. What concerns me is the forward guidance embedded in the April FOMC minutes: market participants were pricing approximately a 30% probability of a rate hike by Q1 2027, with median survey respondents still expecting two 25bp cuts in Q3-Q4 2026 and Q1 2027. That pricing was formed before the April CPI print. With headline now at 3.8% and a credible path toward 4%+ by May or June — as multiple forecasters including EY and PIIE are flagging — the market's easing bias is structurally mispriced. The minutes also noted that longer-term inflation expectations remain 'anchored near 2%,' but that anchor is being stress-tested with every sequential acceleration.
Kevin Warsh's installation as FOMC chair is the institutional wildcard that adds asymmetric hawkish optionality to this picture. The April minutes confirm he was unanimously selected. Warsh has historically been more sensitive to inflation credibility and less tolerant of above-target persistence than his predecessor. With four dissents at the April meeting — the highest since 1992 — and a chair who has every incentive to establish anti-inflation credibility early in his tenure, the probability distribution for the next policy surprise skews toward tightening, not easing. The market is not pricing this.
TLT is sitting at $85.30, down 0.53% YTD. That YTD move significantly understates the structural repricing risk if the May CPI print — due June 10 — comes in above 4.0% as forecasted. Duration remains the crowded-on-the-wrong-side trade. The inflation regime that I described as 'metastasizing from energy into core services' in my last post is now showing energy re-ignition layered on top of sticky core — a combination that historically forces the Fed's hand regardless of what the dots say. I am maintaining BEARISH on duration with high conviction.