US CPI US Indices Post: S&P 500, Nasdaq, and Dow Jones Dip. The main event on the economic calendar today was US CPI data. Which determined the direction of market indices due to January’s inflation reading being higher than anticipated. Rate expectations first drove risky assets lower before lifting stocks.
US CPI TROUBLES MARKETS. AS INVESTORS WAIT FOR FED SPEAK
The Core CPI (minus food and energy) came in at 5.6%, exceeding expectations for a 6.2% annual inflation rate that increased to 6.4% the previous month.
The Core CPI (minus food and energy) came in at 5.6%. Exceeding expectations for a 6.2% annual inflation rate that increased to 6.4% the previous month.
After the figures were released, the Nasdaq 100 index climbed significantly, backed by the S&P 500 and Dow, before giving back some of today’s increases.
Fed will increase key rates by a total of 50 basis points.
US CPI Looks at Fed’s Reaction
The US inflation rate is declining, albeit very slowly. The January statistics, which showed a little decline between 6.5% to 6.4%, reinforced this. Hence, the Federal Reserve cannot be content just yet
We remain confident that the Fed will increase key rates by a total of 50 basis points, at which point the goal corridor’s upper estimate would be 5.25%.
Market and Analyst Predicts
Economists had anticipated the figures would provide more conclusive proof that last year’s series of interest rate increases to control inflation was effective. This year, growth stocks in particular have gained on the expectation that the Fed will soon stop raising interest rates.
Thoughts of a speedy resolution are dwindling. Many now predict that the benchmark rate will rise by another quarter of a percentage point. When the Fed resumes in March as well as at least an additional one after that in May. Reaching above 5 percent by this summer.
The National Federation of Independent Business‘s small business optimism index for January came in at 90.3, which was higher than the previous reading but below expectations.
Despite the beverage company predicting a solid full-year profit. Shares of Coca-Cola Co (NYSE: KO) dipped 0.7%. Marriott International Inc. (NASDAQ: MAR) shares increased 0.7 percent. After the hotel behemoth predicted 1st earnings will be greater than anticipated due to high traffic volume.
Shares of Boeing Co. (NYSE: BA) increased 1.2% following the news that Air India had placed an order for 200 aircraft.
The Report was eagerly Awaited
The report was eagerly awaited because Wall Street has been suffering for much more than a year. Due to inflation and the Federal Reserve’s reaction to it.
Investors are attempting to predict how soon and gently a slide to the Fed’s 2% objective could unfold since inflation has been falling since a July peak.
Inflation decreased from 6.4% in Dec to 6.4% in Jan, according to the report released on Tuesday, however, it was still somewhat higher than forecast by analysts.
That can be seen negatively by the markets as it could urge the Fed to raise interest rates too aggressively than it has previously stated.
The Federal Reserve already has increased its benchmark near-term rate, which was practically zero a year earlier, to a band of 4.50% to 4.75%.
Investors Perspective
Investors are now banking on a 13.3% possibility that the Federal Reserve’s benchmark rate will exceed 5.5% by July. Up from their previous projection of how high the Fed would raise rates by the summer. The chance has increased from the 0.2% been seeing a month earlier.
However, in addition, to time, increases in the price of housing and other forms of housing accounted for about half of January’s month-over-month inflation. Jerome Powell, the chair of the Fed, has stated he anticipates a reduction in inflationary pressures.
Economists also cited modifications to the government’s inflation calculation formula, which increased some goods’ weights while decreasing others.
Investors had been anticipating lower inflation tendencies in the hopes that the Fed would consider suspending its rate increases until eventually lowering them.
In the end, according to a number of analysts, Tuesday’s inflation report supports a cooling period but doesn’t provide a comprehensive response.
US Bonds Reaction
The bond market in particular has seen higher yields due to the market’s expectations for the Fed. After a stronger-than-anticipated report on the U.S. labor market last week, The two-year Treasury rocketed to its highest level since November.
Late on Monday, the 2-year yield increased to 4.58 percent from 4.52%. It originally fluctuated after the announcement of the inflation report, going up, down, and back again.
Mortgage as well as other loan rates are influenced by the 10-year yield. Which increased to 3.72 percentage points from 3.70 percent
