Investors Must Rethink Rate Cuts as S&P 500 Caught Off Guard by CPI Shocker
Tuesday’s much-anticipated U.S. January CPI report was not what the bulls wanted to see.
Consumer prices jumped at the start of the year amid a surge in the cost of shelter, food, and healthcare, providing further evidence that the Federal Reserve is unlikely to cut interest rates anytime soon.
Investors now see just a 5% chance of a 25-basis point rate cut at the Fed's March meeting, according to the Investing.com Fed Monitor Tool, while the odds for May stand at about 30%, which is down from over 90% a few weeks ago.
Looking out to June, traders believe there is a 75% chance rates will be lower by the end of that meeting.
The U.S. consumer price index rose 0.3% last month after gaining 0.2% in December. In the 12 months through January, the annual CPI increased 3.1%.
That followed a 3.4% advance in December. Economists polled by Investing.com had been looking for a monthly increase of 0.2% and an annual gain of 2.9%.
As seen in the chart below, U.S. CPI inflation has come down significantly since the summer of 2022, when it peaked at a 40-year high of 9.1%.
Source: Investing.com
Nonetheless, while the rate of inflation is trending lower, prices are still rising far more quickly than what the Fed would consider consistent with its 2% target range.
Excluding the volatile food and energy components, core CPI increased 0.4% in January after climbing 0.3% in the previous month. On an annual basis, core CPI rose 3.9%, matching December's increase.
Source: Investing.com
The forecast had been for 0.3% and 3.7%, respectively.
In a worrying sign, the so-called ‘supercore inflation’ measure, which tracks the cost of services minus housing and energy, jumped 0.8% on the month, the most since April 2022.
Source: ZeroHedge
The
Read more on investing.com
