Equity markets continue to advance despite hot inflation. The headline read of the CPI index came in lower than expected but still hot at 4.0%, double the Fed's target, while core inflation runs hotter at 5.3%. The data increased the odds of another rate hike, a negative for equities, and the CME's FedWatch Tool suggests interest rates could rise another 50 basis points and top out above 5.5%. The real danger is that hot inflation will keep the Fed tighter for longer, which is not fully priced into the market.

Today's FOMC meeting appears to be priced into the market. The CPI data was neither hot nor cool enough to sway them from pausing or indicating a cut, which the market wants. This means that equities could continue to rally into the summer when the Fed is slated to meet again. By then, the Fed will know if the cool-down of inflation is real and whether another interest rate hike is needed.