A light at the end of the Federal Reserve’s (Fed) tightening tunnel has recently emerged. Headline consumer inflation decelerated last month to 7.7% from 8.2% based on a year-overyear comparisons. Core inflation ticked down to 6.3% from 6.5%. While both headline and core inflation measures remain well above the Fed’s 2% inflation target, the data is most importantly heading in the right direction. Recent wholesale inflation tells a similar story of a peak in pricing pressures, which has been the expectation of the Strategic and Tactical Asset Allocation Committee (STAAC) at LPL Research.

The lower trajectory in inflation has provided the market with much-needed visibility around Fed tightening coming to an end. As shown in the chart below, fed funds futures suggest the end of the rate hike cycle could come in May or June 2023. While there will be continued debate on the degree and timing of future rate hikes, the one thing most investors seem to agree on is that the terminal rate will likely peak sometime next year.