The market has dramatically mispriced the Fed's near-term trajectory. Fed Funds Futures (FFF) now imply a mere 12% probability for a 25bps hike at the next FOMC, a sharp collapse from 68% post-last NFP print. This isn't just noise; it's a structural unwind. Core PCE's latest YoY reading at 2.8% firmly undercuts prior inflation fears, while the U-3 uptick to 4.1% dampens ULC growth projections, giving the doves ammunition. OIS spreads are tightening, signaling already restrictive financial conditions. Furthermore, the persistent 10s-2s yield curve inversion at -75bps unequivocally indicates recessionary headwinds, historically precluding aggressive tightening. The prevailing hawkish narrative is detached from accelerating disinflation and softening labor data. This points to an undeniable pause. 90% NO — invalid if next CPI report accelerates above 3.0% YoY.
