Rates were prepared to make a big move in one direction or the other heading into today's high stakes inflation data.  Fortunately, the Consumer Price Index (CPI) came in quite a bit lower than expected, leading to a sharp decline in rates at the average lender.  

30yr fixed rates had already trickled back below 7% yesterday.  Today's drop saw them surge easily under 6.90%, making for the 2nd largest single day drop so far this year.  The improvement also adds to the case that rates are in a downtrend after their last major peak in late April.

CPI is the first major national inflation reading for any given month.  Investors focus more on the "core" which excludes food and energy.  Month over month core CPI needs to average .17 over 12 months to hit the Fed's 2% inflation target.  Last month's report was promising because that number fell to .163--the lowest since 2021 at the time.

Today's core CPI reading was markedly lower, dropping all the way to 0.065.  Other components of the report, such as the closely watched housing expense metrics saw even larger drops relative to their recent range.  Housing inflation has been a problem for the broader CPI measurements and this is the first report that shows the shift that the market has been waiting for.

While this is the most promising inflation data we've seen in years, and while it is made even more promising by adding on to last month's lower readings, these are still only 2 consecutive months of good news.  We've arguably seen 2 months of good news in the past only for things to turn back around.  Granted, that's less likely this time, but the Fed and the market can't quite bet on it just yet.  Otherwise, today's rate drop would have been even bigger.