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Rates Rise on Return of Inflation

Short-term Treasury yields rose to their highest level since September 2008 this week, as Friday's CPI report showed that core inflation is rising.  Although the CPI measure isn't the Federal Reserve's preferred measure of inflation, the report further stoked prospects for an additional rate hike in March by the FOMC.  The report indicated that core inflation rose 0.3% for the month of December, the largest monthly advance since January.  It also supports the Fed's theory that prior low inflation readings were the result of transitory factors.  With the labor market remaining healthy and inflation approaching Fed target levels, the table appears to be set for additional rate increases this year. 

Also on Friday, the Census Bureau released a very strong retail sales report, with November's sales revised sharply upward and December's readings in line with expectations.  For the full year, retail sales rose 4.2%, which marked the largest advance since 2014.

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