![]() ![]() 3 That expectation has been tempered over the last two months. Bond traders had signaled hope for up to seven rate cuts in 2024, as seen by the CME FedWatch tool at the end of 2023. opened significantly down and rates on 10-year Treasury bonds spiked. Market reactions to the January inflation report and subsequent Fed member remarks were indicative of a shift in expectations. The unsnarling of supply chains that have brought prices down in other areas have not had as great an effect on food prices, which continue to be high due to a mix of factors beyond policymakers’ control, including droughts and the ability of grocery stores to increase prices without significantly reducing demand. Despite declines in other areas, food inflation remains significantly above the Fed's 2% target, illustrating the complexities of pandemic-related inflationary pressures. Stubbornly high food cost inflation, especially for at-home consumption, also continues to challenge policymakers. Sarah Stillpass, Global Investment Strategist for J.P. Morgan’s Global Investment Strategy team, noted that, “While eyes were particularly focused on the spike in rents, we believe this to be a one-off occurrence as leading indicators for rent continue to show deceleration.” Part of the issue for the Fed and economists is the way housing costs are measured, which creates a lag between actual increases or decreases in housing paid by renters and owners and when those price changes appear in the official inflation print. The continued aftershocks of the pandemic continue to shape the inflation landscape, particularly in the housing sector. However, the core CPI accelerated 3.9% year-over-year, exceeding expectations that had anticipated a 3.7% annual increase. Market participants had been optimistic about a continued gradual decrease in inflation, aiming for a headline rate below 3%. Looking at the year-over-year data, the all-items index increased by 3.1% for the 12 months ending in January – a slight deceleration from the 3.4% increase seen for the year ending in December. On a more positive note, the energy index experienced a decrease of 0.9% during the month, largely attributed to a reduction in the gasoline index, providing a counterbalance to the increases seen in other sectors.Īdditionally, the index for all items less food and energy, often referred to as the core CPI, experienced a 0.4% rise in January. The costs of food at grocery stores have been a particular problem for consumer budgets, which have not moderated to the same extent as other consumer goods. Breaking this down, the food at home index rose by 0.4%, and the index for food away from home increased by 0.5%. The food index saw a 0.4% increase in January. Notably, the shelter index surged by 0.6% in January, significantly contributing to over two-thirds of the month's total increase in all items. The incremental rise is unwelcome news for policymakers and markets, as it indicates the Fed may have to keep money more expensive for longer. The CPI for All Urban Consumers (CPI-U) marked a 0.3% increase in January on a seasonally adjusted basis – a slight acceleration from the 0.2% rise observed in December. The current report does not support the narrative that inflation will moderate on its own to the Fed’s 2% target, however. After the most aggressive rate-hiking regime in modern times, which tanked stocks and bonds in 2022, encouraging reductions in prices from essentials like gas and food to core items like used cars and trucks made markets hopeful that the Fed was done hiking rates and was even ready to cut rates several times in 2024. 1 Following a peak inflation rate of 9.1% in the latter half of 2022, the subsequent decline in both headline and core inflation has been a source of hope for economists and market participants alike. following the pandemic hasn’t yet run its course. ![]() The January 2024 Consumer Price Index (CPI) report released on February 13 showed that the significant economic recalibration in the U.S. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |