It was a critical week for financial markets and especially for rates as investors digested the latest inflation data and the Fed's smaller rate hike.  In fact, the latest inflation data could be thought of as the most important and most persistent focus for rates all year long. When it comes to measuring inflation, there are multiple economic reports that matter, but it is the Consumer Price Index (CPI) that has by far and away the biggest impact on the market.  This week's installment was important because the last installment suggested a shift  toward a slower pace of price increases.  In other words, it had the opportunity to confirm that shift or argue against it. Inflation is important for a variety of reasons, but it affects the market most directly due to its influence on the Federal Reserve's policies.  Higher inflation means more rate hikes and more rate hikes reverberate through the economy.  While the Fed Funds Rate doesn't directly dictate mortgage rates, if markets expect the Fed to hike faster than before, interest rates tend to move higher and stocks tend to move lower. In the following chart, the 10yr Treasury yield represents the "rate" side of the equation, and it is a dead giveaway that this week's inflation report was lower than expected (Dec 13th).  The chart shows stocks and rates reacting to the Fed policy implications in the first half of the week.  Then later in the week, additional weakness in stocks helped rates remain a bit lower as investors sold stocks aggressively and sought a safer haven in the bond market.