Yesterday was a pivotal day for the markets as inflation data and the latest Fed decision dropped. The highly anticipated Consumer Price Index (CPI) report showed an unexpected 0.1% monthly decrease, with the annual rate cooling to 4% from 4.9% previously.

Even more encouraging, core CPI which strips out volatile food and energy costs hit its lowest level in over a year at 3.4%, down from 3.6%. This was welcome news for the "Team Transitory" inflation camp.

The producer price data released this morning added to the disinflationary narrative, with PPI holding steady at 2.2% year-over-year versus expectations of 2.5%. Core PPI also came in lighter than forecast at 2.3%.

The crypto markets celebrated the inflation downtrend, with Bitcoin climbing 3.2% and Ethereum up 3% on the day. Equity markets also rallied, with the Nasdaq gaining 1.5% and the S&P 500 up nearly 1%.

While the improving inflation trajectory was a positive development, it wasn't enough for the Fed to signal an imminent pivot on interest rates. As expected, the FOMC raised the benchmark rate by 25 basis points to a range of 5.25%-5.5%.

In the post-meeting press conference, Chair Jerome Powell maintained a hawkish tone, saying the disinflationary process has begun but has a long way to go. The Fed's latest projections show just one additional 25 bps rate hike this year, down from three previous quarter-point increases.

Powell cautioned that containing inflation will require keeping policy restrictive for some time, potentially disappointing investors hoping for rate cuts in 2023. When asked about the resilient labour market potentially putting upward pressure on inflation, Powell reiterated it would take a period of sub-trend growth to rebalance supply and demand.

Market pricing currently reflects around a 70% chance of one final quarter-point rate hike in July. Cries of a "Fed pause" have quieted as participants recalibrate their expectations for a higher peak rate and an extended period of restrictive policy.

The way I see it, the latest inflation reports are steps in the right direction, even as the Fed remains laser-focused on its 2% objective. More sustained progress on the pricing front will likely be needed before Powell & Co. are comfortable taking their foot off the economic brakes.