U.S. inflation rose slightly more than expected in January
The consumer price index, a widely followed inflation metric, rose slightly more than expected last month, thanks in part to rising gas and fuel prices.
The index rose 0.5% month over month, which translated into an annual gain of 6.4%. Economists polled by Dow Jones had been looking for respective increases of 0.4% and 6.2%.
Excluding volatile food and energy, core CPI increased 0.4% monthly and 5.6% from a year ago, against respective estimates of 0.3% and 5.5%.
The December number was also revised to a 0.1% gain. Originally, the BLS reported a 0.1% decline.
Before the number was released, JPMorgan’s trading desk predicted that an annual increase of 6.4% to 6.5% would trigger an S&P 500 loss of about 1.5% on Tuesday.
So far, stock futures were taking the number in stride. The number was better than worst fears of a 6.5% or greater annual increase, an acceleration in inflation that would have triggered an S&P 500 decline of 2.5%, JPMorgan predicted.
— Jeff Cox
Wharton’s Jeremy Siegel expects the Fed to cut rates even after latest inflation report
The Federal Reserve is still likely to cut interest rates later this year despite stubbornly high inflation, according to Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School.
Although the consumer price index was up 6.4% on January — far above the Fed’s target rate of 2% — Siegel said that the Fed’s current rate hikes have already impacted prices, noting that it has been only 11 months since the Fed began its course of rate increases.
“Milton Friedman said 12-18 months before you can get any effect on prices,” Siegel said on CNBC’s “Halftime Report” on Tuesday afternoon. “We’ve had a lot of effects on prices in the first 12 months … This is a long process, to be sure. And it’s a process that the Fed has to let go through the market.”
To be sure, the finance professor added that he is less certain about a rate hike following January’s “unbelievable” jobs report.
“I do see a stronger economy than I saw four weeks ago,” said Siegel. “That would mean, more likely that the Fed would not reduce the rate as fast in the second half in the year.
However, he believes that the odds of a rate hike remain more probable than not.
“I still think it is likely. More than 50%, that they will cut. Maybe I thought it was 80%, maybe now I think it’s 50%.
He added, “I don’t think anyone including the Fed knows, because they plan their increases or decreases policy 10–14 days in advance. All the further-out ones are totally data-dependent — on what they see.”
— Hakyung Kim
Investors should expect Fed to continue hiking from here
Even though January’s CPI report showed that inflation is slowing on the year, it likely wasn’t enough to change the Federal Reserve’s course of interest rate hikes, according to Anthony Saglimbene, chief market strategist at Ameriprise.
He said that investors should expect the central bank to continue to raise rates from here, even if it’s not what traders have been hoping for.
“The market still doesn’t buy the idea Mr. Powell and company won’t need to cut rates this year,” he said. “And that’s because investors fear growth may slow considerably by the end of the year and pressure the Fed to ease policy in an effort to help support the economy.”
Still, the “verdict is still out on that outlook,” he said, adding that scenario could add risk for asset prices.
“In a nutshell, the mixed dynamics around rates, monetary policy, and the growth outlook had traders taking a breath last week and moving some of their chips to the side ahead of this week’s January CPI report,” he said.
—Carmen Reinicke
Fed’s John Williams notes progress on inflation, vows to ‘stay the course’
New York Federal Reserve President John Williams expressed confidence Tuesday in the progress made against inflation though he said the central bank’s work isn’t finished.
“When it comes to monetary policy, we must restore balance to the economy and bring inflation down to 2% on a sustained basis,” Williams told a bankers group gathered in New York. “I am confident that the gears of monetary policy will continue to move in a way that will bring inflation down to 2%. We will we stay the course until our job is done.”
He noted several factors that are complicating the inflation fight, such as rebounding economic growth in Europe and China. Also, he noted that after progress had been made in unclogging global supply chains, it has stagnated in recent months.
Services excluding food, energy and shelter, or “super-core” inflation, also has stayed elevated.
“So, our work is not yet done. Inflation is still well above our 2 percent target, and it is critically important that we reach that goal,” Williams said.
—Jeff Cox