The US inflation report remains front of mind today and we're seeing that reflected in early cautious trading in Europe, with US futures also marginally lower ahead of the open.
The fear is that inflation remains more stubborn than the Fed is willing to tolerate in the near term alongside a labour market that is still hot, despite small signs of cracks appearing.
The central bank has made it perfectly clear that returning inflation to target over the medium term remains the primary goal whatever the cost but we've now likely entered the uncomfortable period in which things are breaking, credit conditions are tightening considerably but the data isn't quite there yet.
The monetary policy lag was always likely to complicate the exit strategy and could ultimately be what pushes the Fed to tighten too far - if it hasn't already - and trigger a more painful recession. A softer inflation reading today would bring some light relief after Friday's jobs report but it may take more than that to win policymakers over.
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