The January inflation report delivered an unsettling surprise to investors Tuesday, indicating that price pressures remain more tenacious than anticipated. Despite a slight decrease from December’s 3.4% figure to 3.1% year-on-year, inflation exceeded forecasts, challenging the Federal Reserve’s pathway to anticipated rate cuts.
Hotter-than-expected inflation figures were visible in the month-over-month changes, as well as in the underlying price index.
Overall inflation saw a monthly uptick of 0.3%, surpassing both its previous increase and the anticipated 0.2%. Excluding food and energy, core inflation maintained a yearly rate of 3.9%, failing to meet the forecasted reduction to 3.7%.
Economists, analysts and market observers analyzed the implications of the data, considering its potential impact on Federal Reserve policies and future market dynamics.
Bank Of America Adjusts Rate Cut Calls
The January Consumer Price Index report reinforces the Federal Reserve’s concerns around sticky core services inflation due to a tight labor market, said Stephen Juneau, an economist at Bank of America.
The bank now views a March rate cut as highly unlikely and sees diminished prospects for a cut in May. Nonetheless, Juneau continues to anticipate rate cuts starting in June, hopeful that forthcoming CPI data will pivot the discussion back to disinflation — provided that January’s figures are seen as an outlier rather than a harbinger of a new trend.
Bank of America highlighted the dollar’s sharp reaction following the inflation report, with the USD appreciating across the board amid concurrent re-pricing of Fed expectations. On an index level, the DXY, as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP) has moved back to its highest level in three months, having now more than fully retraced the move lower on back of the dovish December FOMC meeting.
Inflation Trends Signal No Relief Without More Fed Hikes: Schiff
Economist Peter Schiff, known for his gold advocacy, made a striking statement Tuesday regarding the inflation data: “There’s no chance inflation will return to 2% without further rate hikes by the Fed.”
He views the situation as favorable for gold, suggesting it demonstrates the Fed’s inability to curb inflation with its current interest rate strategy….
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